Following breakneck expansion during the stay-at-home years of the pandemic, tech titans Apple, Amazon, Microsoft, and Facebook are among the global giants, which have a big presence in Ireland, are pulling back on staff and investment around the world as they battle inflation and slowing sales.
These companies have an outsized presence in the Irish market and hence we can expect that inflation may also cause an outsized impact here.
A weak euro is one of the pain points affecting the profit line of a large range of US corporations located here, reducing the bottom line of their dollar earnings.
The euro’s value has fallen sharply against the dollar in recent months. In the summer of 2021, one euro bought $1.20 but by this summer, it's worth just one dollar, effectively the lowest for the euro for as long as Ireland has been a member.
A weak euro helps Irish and other European companies that sell their products in the US but it also has serious disadvantages for the Irish economy, with its heavy presence of US corporations, who will report lower corporate profits on their euro earnings. That ultimately will impact on the corporation taxes they pay to the Government here.
Apart from the goods produced in the EU and the UK, all imported raw materials as well as all oil supplies, are paid for in dollars. Hence, the vast range of goods imported from China are all paid for in the US currency, increasing their cost in euro terms by an average 20% over the past year. And that's before freight cost and fuel price hikes are accounted for.
The net result has been red-hot inflation squeezing both households and businesses alike. Eurozone consumer inflation hit an all-time high of 8.9% in July, Eurostat published on Friday showed.
Persistent supply bottlenecks for industrial goods and recovering demand, especially in the services sector, also contribute to the current high rates of inflation. Price pressures are spreading across more and more sectors, in part owing to the indirect impact of high energy costs across the whole economy.
The fear of how to pay for the next delivery of raw material is undoubtedly also creating its own price inflation as many businesses are battening down the hatches and grabbing their own piece of the price increase.
However, the current wave of inflation has also heralded the end of the golden period of cheap labour that began in the 1980s as eastern Europe and China opened up to international markets. That cycle is coming to an end.
Trade Promotion Minister Robert Troy has been active over in the past few weeks promoting digital workshops for businesses.
The pandemic, says Mr Troy, has split the business world into two camps: Those that had digitised their operations and could remain agile, and those that hadn’t.
That fissure will become an ever-wider chasm over the next few years. Technology gives us many of the tools we need to lessen the resurgent influence of not only inflation but other nagging supply-chain issues as well.
Stand still, and it won’t be long before you start feeling the heat, he said.
The Government programme called "Digital Discovery" offers a grant of €4,500 for five days digital start consultancy. It will likely be a welcome assistance to many small businesses who don’t know where to start to get digital to work.
Meanwhile, with the European Central bank showing no appetite to keep pace with the US Federal Reserve's huge hikes in interest rates, the weak euro and the resulting high prices for imported raw materials and intermediate inputs seem set to remain a feature with us through the rest of the year.
- John Whelan is a leading expert on Irish and international trade flows