Jim Power: 2023 was good year for the economy but 2024 may be more challenging

The risk is that tax increases could just injure the goose that lays the golden egg

Sun, 10 Dec, 2023 - 16:00

As we end 2023, the signals on the economy are somewhat mixed. The latest data from the Central Statistics Office (CSO) show that the economy, measured by the very unreliable GDP metric, has contracted every quarter over the past year, and even that more accurate metric, modified domestic demand has been quite weak and was flat during the third quarter.

Consumer spending has held up quite well but has moderated; business investment has slowed; and the export performance has deteriorated, mainly reflecting some issues in the multi-national export sector.

The labour market was a stellar performer in 2023.

The most positive surprise that ended 2023 was the jump of €1.3bn or 27% in corporation tax receipts in the most important month of the year, November. This came after three disappointing months.

This certainly represents good news for the Minister for Finance entering what could be a general election year.

However, it does demonstrate the incredible volatility of corporation tax receipts and the extent to which large swathes of our economy and our public finances are largely outside of our control.

In summary, 2023 was a reasonably good year for the economy but 2024 has the potential to be more challenging.

Regardless of whether 2024 is a general election year or not, politics will dominate the domestic scene next year.

Local and European elections will be held in June and the performance and policy platform of Sinn Féin will warrant considerable attention, particularly as they will give us a fair idea of the issues and policies that the party will carry into the general election, which must be held by the end of March 2025.

One way or another, every political party will be in general election mode, and businesses and the rest of us will have to think long and hard about the implications of a significant shift in the Irish political landscape over the next 18 months.

The risk is that tax increases could just injure the goose that lays the golden egg.

Globally, the ongoing geopolitical uncertainty and wars that are demonstrating the savagery of humankind will continue to dominate the global agenda.

The ongoing rise of the radical right will also likely remain a disturbing feature of the global political system.

We saw the recent success of Geert Wilders in the Netherlands, but the Dutch situation would pale into insignificance in the frightening eventuality that Donald Trump might be the next president of the US.

Geert Wilders recent success in the Netherlands would pale into insignificance in the frightening eventuality that Donald Trump might be the next president of the US. Picture: Peter Dejong/AP

There is still a long way to go before next November’s US election and literally anything could happen with Mr Trump, but he is in a reasonably good place electorally now.

Economically, the focus will be on how quickly central bankers move to reverse the damage being done to the global economy and it seems reasonably safe to assume that the global interest rate cycle will turn down in 2024, maybe sooner rather than later. Domestically, housing will dominate the agenda.

Over the past week I have been speaking at events across Canada and I had the pleasure of sitting in the visitors’ gallery during Canadian prime minister Justin Trudeau’s question time.

The debate going on in that parliament could have been lifted out of Merrion Street. Housing supply; food poverty; homelessness; rent levels, and carbon taxes dominated debate.

As I met many Irish Canadians during the week, I was amazed at the affinity with the Irish in cities such as Ottawa, Montreal, and Toronto.

It seems clear to me that Canada is a country that should get more economic attention here, both in terms of inward FDI and export potential for Irish companies, particularly the SME sector.