Ireland's economy still largely dependent on trade winds

Ireland’s status as a small open economy, and its dependence on external developments, is being brought into sharp relief by unfolding events.

It also, once again, underlines the critical importance of decisions taken domestically to enhance and improve the economy’s ability to perform.

Unlike large economies such as the US, where international trade is a small part of the economic engine, Ireland’s destiny is largely dependent on trade winds.

If you imagine a large self reliant economy as a super tanker in a big economic ocean then Ireland is a small dinghy bobbing around among the waves.

When conditions are benign our little boat is a joy.

When a storm brews it is all hands on deck.

Right now a nasty Easterly is developing on the near horizon as Britain prepares to vote in late June on Brexit.

If the UK population votes to leave the EU the inevitable consequence is that trade barriers of one sort or another will emerge between the UK and various parts of Europe.

Ireland is not designed for a world defined by impediments to trading.

Instead, we are able to perform best when part of a liberalised market system that allows unfettered access to large markets. Of course, that means businesses abroad can freely enter the Irish market too.

In order to survive, Irish companies have to run a platform that can both defend its home patch and advance into others.

Brexit would change that fundamentally, particularly in an economy that is currently our largest trading partner.

The US presidential election is another weather system we need to keep an eye on.

Some of the rhetoric in the primary campaign has suggested US multinational expansion abroad will be curtailed and pressured to stay within America.

That may sound barmy in the board room of companies that have global reach but it nonetheless could hinder FDI from 2017 onwards depending on how the election unfolds.

Ireland is the standout winner of FDI activity on a relative basis so we need to monitor US policy closely.

These big international stories put a focus on how Ireland manages itself in these changing circumstances. Using the nautical analogy even a small boat needs to have its hull clean and engine well maintained to ensure steady and safe navigation.

So, are we in ship shape? I’d argue that despite the elongated and tortuous process leading up to a Government formation the integrity of the good ship Éire is reasonably sound.

Despite repeated attempts to undermine Ireland’s commitment to a 12.5% corporate tax rate that policy has been defended to the hilt.

Moreover, as the pressure grows on true off shore tax centres companies are increasingly committing to countries that are deemed legitimate by the world’s leading economies and Ireland is on that list.

There are, nevertheless, pinch points that threaten to chip away at Ireland’s attractiveness to investors.

Affordable accommodation looks like a very big issue here and now.

If young people cannot access accommodation as a reasonable price, either via ownership or renting, it makes it more difficult for employers to attract workers from home or abroad.

An emergency plan is needed to get shovel-ready projects in place for completion from 2017 onwards.

Debt levels are another issue. Note that despite personal borrowing rates falling modestly our national debt remains enormous. The Germans have a word for debt — Schuld — which also means guilt in their language.

It’s an interesting insight to their psyche which treats debt like nitroglycerine and helps explain why managed rents are a critical part of German spending and housing patterns.

Some radical thinking that helps alleviate accommodation pressures without imposing gigantic debt burdens on young people should be considered when planning our next ship of state.

Without it we risk turning a nifty jib into a leaky submarine.

  • Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.

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