They say that a week is a long time in politics, but the past month has definitely been a very long time in the world of economics. All has utterly changed over the past number of weeks. When I presented at the IOD Evening Briefing series on 20th February, I alluded to the fact that 2019 was a difficult year for the global economy, largely due to the trade dispute between the US and China, and of course Brexit. I was moderately optimistic for 2020, based on the premise that President Trump would water down his trade issues with China due to the fact that he faces an election in November that he really wants to win. As a consequence, or so my logic went, he would not want to go into that election against a background of global and US economic difficulties as a result of a trade spat between the US and China. This is how things appeared to be going in the early weeks of 2020 as Trump and the Chinese developed a relationship of reconciliation and they very definitely started to dilute the dispute.
On my list of things to watch in 2020, I included COVID-19 (thankfully), but I did not highlight it as an issue that would blow the world economy apart over a few short weeks. Unfortunately, that is exactly what it has done. Back then I assumed it would be another SARS-type event. How wrong could I have been.
An economy is made up of the millions of transactions that take place every day, and the more transactions that take place, the stronger economic growth is and vice-versa. What we have witnessed over the past few weeks is basically the voluntary or mandatory shutting down of large swathes of most economies and economic activity is collapsing before our eyes.
At this early stage of the COVID-19 crisis, it is very obvious that the economic and financial impact is dramatic. Unfortunately, we do not have a lot of visibility at the moment, but signs that the Chinese economy and society are coming back to life does give some grounds for optimism.
Equity markets have become incredibly volatile over the past month and severe losses have been endured in all markets. In the year to date (up to March 27th), the US S&P 500 has lost 17%; the Dow Jones has lost 19.5%; the FTSE 100 has lost 30.4%; the German DAX has lost 26.4%; the Japanese NIKKEI has lost 16.7%; and the ISEQ has lost 31.4%. Movements of 4 or 5% a day or indeed an hour are not unusual at the moment.
On currency markets, the dollar has strengthened somewhat, reflecting the traditional safe-haven status of the dollar. Sterling has fallen sharply against the dollar and the euro. The weakness of sterling probably reflects a combination of the way in which the UK Prime minister has handled the COVID-19 crisis and Brexit. Neither has inspired confidence. However, just like equity markets, currency markets are also very volatile at the moment.
In terms of economic data releases, we are now starting to see the first indications of the impact in March. The Purchasing Mangers’ Index (PMI) is a monthly survey of business confidence in both manufacturing and services. A reading above 50 means that more businesses expect growth than contraction, and vice-versa for a reading below 50.
• In March the composite PMI in the US fell from 49.6 to 40.5; the UK index fell from 53 to 37.1; and the Euro Zone index fell from 51.6 to 31.4. These declines are without precedent and are truly dramatic. Within the composite indices, services are taking the biggest hit as many service activities are being shut down.
• The German Ifo survey of business confidence in March fell from 96 to 86.1.
• Initial jobless claims in the US increased by 3.28 million in the week to 21st March. This is the largest weekly increase ever recorded, with the previous highest increases of 672,000 in 1982 and 659,000 in 2009.
The official policy response around the world has been quite dramatic and inevitably there will be more of the same over the coming months. The following is a sample of the official actions already taken or being considered:
• The Bank of England has cut interest rates from 0.75% to 0.1% and has committed to a further £250 billion of official bond purchases;
• The UK government has introduced a massive fiscal stimulus package;
• The US administration has got approval for the largest ever fiscal stimulus package seen anywhere, totalling $2 trillion;
• The Federal Reserve has cut interests to zero in two emergency moves. The last time there was an emergency rate cut in the US was in the immediate aftermath of the collapse of Lehman Brothers in September 2008. The US central bank is also supplying massive liquidity to the markets;
• The German government has announced a fiscal stimulus package of €156 billion (equivalent €10% of GDP);
• The EU has effectively ditched the EU fiscal rules. I argued at the IOD briefing in February that the EU would have to re-visit those rules in any event in 2020, given the extreme weakness of the Euro Zone. COVID-19 has obviously increased the requirement for such action;
• The EU is giving consideration to the issuance of an EU-backed ‘Corona Bond’. This would help control sovereign risk, which is very important in the context of countries like Italy and Greece, but the Germans are opposed; and
• The EU is giving consideration to utilising the precautionary credit line available under the European Stability Mechanism (ESM). This credit line is intended to help countries with sound economic fundamentals, which are affected by an adverse shock beyond their control. This mechanism would be equivalent to around 3% of GDP, but this could be increased.
The aforementioned is just a sample of the monetary and fiscal policy response seen to date. The key problem is that the global economy was already quite vulnerable before COVID-19 hit, so the impact is proving pretty dramatic to date. The other problem is that given the pre-existing low level of interest rates everywhere and the liquidity that has been injected into the world economy over recent years through quantitative easing (QE), the monetary policy armoury was already limited. Consequently, there is a massive onus on governments to use aggressive fiscal policy measures. Thankfully this is now happening to varying degrees around the world.
The official policy response to date is impressive and does suggest that policy makers stand ready to do whatever is necessary to support global banks, households and businesses. It is imperative that what is currently an economic shock and crisis, is not allowed morph into a banking crisis, which was the distinguishing feature of the 2007/2008 crisis. That is why it is essential that central banks pump liquidity into the banking system and that loan default rates are controlled through government support for businesses and households.
The global economy will see a massive contraction in activity in the second quarter, but the timing of recovery will depend on how quickly the virus is brought under control. This is a medical uncertainty, rather than an economic one. It will be important for policy makers to do whatever is necessary until a vaccine is developed.
There is likely to be a number of longer-term implications flowing from the current crisis. The Brexit transition period will simply have to be extended, but the Prime Minister is, in a logic-defying manner, ruling this out; there will be political fallout, affecting those who did well in handling the crisis and those who did not; there will be a massive government debt legacy; there is a risk of an even greater move towards economic nationalism, with tighter borders; food security and safety should become more important; and the model of capitalism will likely come under serious scrutiny. Proper investment in health services will have to be given priority everywhere. One hopes that out of the current crisis, some positive lessons will be learned.
For the Irish economy, thousands of jobs are currently being lost and economic activity is effectively grinding to a halt, with the exception of public services, and the very important food-supply chain. I hope at the end of all of this, whenever that comes, Irish people will once again realise the importance of domestically provided food that is produced to the highest safety standards possible. Food safety standards and security are just so important, but unfortunately it takes a crisis such as this to hammer that message home.
It is pretty obvious the economic devastation that is being rained down on Ireland at the moment. Tourism is the biggest casualty; non-retail grocery is probably next in line; but most sectors of the economy.
The imperative for policy makers in Ireland is to ensure that those businesses that were viable before COVID-19 struck, will be around to pick up the pieces once life starts to return to normal. For example, pubs, hotels and restaurants will be essential to rebuild the tourism sector, but without strong official support, many will not be in a position to re-open. The reality for many businesses is that cashflow has collapsed, but many costs are still there. This is not a sustainable situation.
The banks will need to support businesses through this; the Revenue Commissioners will have to give breaks on VAT and other tax payments; commercial rates will have to be frozen and central government will instead have to provide funding to local authorities; rents will have to be frozen; and businesses will have to be subsidised directly to keep cashflow alive.
It is vital to recognise that while households will have to be supported, without viable businesses it will not be possible to rebuild our economy. The Irish government package of €3.7 billion is a step in the right direction, but I strongly suspect much more will be needed over the coming weeks.
COVID-19 will eventually pass and what we have to ensure is that businesses and households are kept alive both literally and metaphorically.



One of the dominant themes in global politics over the past couple of years has been a growing sense of nationalism and a move towards isolationist economic policies. Nowhere has this trend been more obvious than in the UK decision to walk away from its free trade relationship with an EU market of 440 million people and the world’s third most populous area after China and India, and the election success and subsequent antics of Donald Trump. A key part of Trump’s pre-election appeal was his assertion that free trade deals have cost US jobs and are not good for the US economy. He promised to re-negotiate the then titled North American Free Trade Agreement (NAFTA), which he has done, and also to pressurize the Chinese on the trade front, which he is also doing. While the Chinese situation is ongoing and is justifiably a source of deep concern, he is now starting to up the ante with the EU.

In marked contrast to these UK and US behaviours, the EU is continuing to plough ahead with the negotiation of trade deals. Japan and Canada are some of the most significant ones agreed by the EU in recent times, but the deal agreed with the four founding member countries of the Common Market of the South, also known as Mercosur – Brazil, Argentina, Uruguay and Paraguay – is proving very controversial and will undoubtedly face many hurdles before it eventually sees the light of day.

The EU already has trade deals with most of the other countries in Latin America, so this is arguably a natural progression for free-trade driven EU. The four Mercosur countries offer a market of 260 million people and the EU already exports €45 billion of goods and €23 billion in services to the four. However, there are significant barriers to trade in the shape of high import duties, burdensome procedures and different technical and regulatory standards. The removal of these could have a very marked impact on trade flows.

Under the Mercosur deal, the EU is allegedly insisting that it will not undermine EU food safety and animal and plant health legislation; that it will protect the rights of the EU to regulate food safety, including genetically modified organisms (GMOs); and the ability of the EU to set maximum levels of residues for pesticides, veterinary medicines and contaminants. In a nutshell, the EU side is arguing that EU rules will apply to all products sold in the EU and that the EU will retain its right to regulate food safety in the interests of EU citizens health. It is also argued that the EU and Mercosur will commit to implementing the United Nations Framework Convention on Climate Change and the Paris agreement on climate change.

The reaction to Mercosur has been generally positive from those who believe in the virtues and benefits of free trade, but the beef sector in the EU in general and Ireland in particular are not buying this and have thus far reacted in a very negative way. The EU side is arguing that it is protecting sensitive agricultural sectors by setting quantitative limits on the importation of products such as pork, beef, ethanol, honey, sugar and poultry. For example, beef imports are being limited to 99,000 tonnes, but there is a total lack of clarity about where the various beef cuts such as steak fit in to these overall limits. This is an important issue for Irish beef farmers who are currently facing a perfect storm from issues such as consumer behavior, over supply of beef produced from the dairy herd, environmental issues around beef production, reduced payments from the EU CAP budget, and intense competition from much cheaper meat products such as chicken and pork. Of course overriding all of this is that big elephant in the beef shed, Brexit.

Beef representatives are arguing with some justification that they are forced to adhere to very expensive and very stringent environmental standards, and are now being faced with unjustified competition from beef producers who currently operate under very lax environmental standards, to put it mildly.

Mercosur is far from a done deal and we can be certain that various lobby groups will become very vocal and possibly militant and at a political level, the just-agreed trade deal has many high hurdles to overcome. Meanwhile outside of the EU, other big trading blocks will continue to push the protectionist agenda.



By Jim Power
As we move into the second half of the year, it is possible to look back on the first six months with a certain degree of positivity. On the whole, the Irish economy continued to make progress and thankfully the relatively negative prognostications for the global economy at the beginning of the year have not really materialized. The global economy has actually maintained a pretty stable state; albeit that state is somewhat softer than policy makers or indeed we here in the small open Irish economy would aspire to and hope for.

Based on the statistical evidence we have to date, the Irish economy is likely to be experiencing real annual growth, not the distorted version, of around 3.5 per cent at the moment. Within this there are some very positive trends, but equally we are starting to see some warning signs that should be taken quite seriously.

On the positive side, the export sector continues to be the stand out performer and issues such as Brexit are not having much of a visible impact, while the Exchequer finances are still showing quite a degree of economic buoyancy.

In the first four months of the year merchandise exports were 12.7 per cent ahead of the same period a year earlier. Exports to the EU, which accounted for 49 per cent of the total, expanded by 11.4 per cent. Within that, sales to the UK expanded by 9.3 per cent, but the UK in total accounted for just 10.8 per cent of our total export sales. I suspect this is the lowest market share in our history, but of course for the indigenous export sector the exposure to the UK is still dangerously high. Almost 36 per cent of exports of food and live animals were sold into Great Britain. This is the real area of concern in the context of Brexit.

Consumer spending on goods, as captured by the monthly retail sales series, increased by just 2.9 per cent in volume terms and by 2.1 per cent in value terms in the first five months of the year. Within this, new car registrations declined by 7.4 per cent in the first six months, with used imports increasing by another 2.4 per cent. Anecdotally and statistically, it is clear that for consumer facing businesses, it remains quite a challenging environment and margin pressures remain the order of the day.

On a somewhat cautionary note, and I stress the term somewhat cautionary, tourism is starting to show some strains and manufacturing activity is under some pressure.

While overall overseas visitors to the country increased by 3.7 per cent in the first five months of the year, there was a year-on-year decline of 0.4 per cent in May, with the UK market down by 4.4 per cent. This is not a situation of crisis by any stretch of the imagination, but it does highlight the cost competitiveness of the Irish tourism product and does in my view cast some doubt on the decision to increase the VAT rate in Budget 2019.

On the manufacturing side, the monthly index of manufacturing activity as measured by AIB Bank, fell marginally below 50 in June, which is an indicator of contraction. Not surprisingly, Brexit is the key factor here.

The unemployed total increased by 300 in June and the unemployment rate remained unchanged at 4.5 per cent. This is no cause for concern in an economy approaching full employment, but it does probably suggest some employer caution as the Brexit clouds continue to darken. Having said that, the labour market has come so far, so fast, the downward momentum was always likely to be arrested at some point.

On the Exchequer finance front, the returns for the first six months of the year show that although total tax revenues are running a modest €128 million behind target, they are still €1.7 billion ahead of last year. There is no greater indicator of what is happening in an economy than tax revenues; after all we tax everything that moves in this country.

So all in all, the report card for the first half of the year is a positive one, but the looming Brexit deadline of October 31st is hanging over Ireland like the Sword of Damocles. Interestingly, a UK group called the Alternative Arrangements Commission is about to publish a report called Alternative Arrangements for the Irish Border, which although very technical and complicated in nature, does suggest some interesting ways of getting the Irish government out of its backstop bind. Watch this space.

Sport Horse Industry in Ireland

In 2018, I produced a report assessing the economic contribution of the Sport Horse Industry in Ireland.

Read the article.

Economic contribution of the bookselling sector in Ireland.

In 2018, I produced a report assessing the economic contribution of the book selling sector in to PDF.

Read the article.



The latest international trade data for Ireland confirm once again that the export sector of the economy remains a very important engine of overall economic growth and it is blatantly obvious that the future health of the export sector is crucial for the overall health and prosperity of the economy. Ireland is first and foremost a textbook example of a very small and very open economy and policy makers as well as the public should never forget this very important fact.

In the first four months of the year, merchandise exports were 12.7 per cent higher than the equivalent period in 2018. In the context of Brexit-related difficulties and the grey clouds that are currently hovering in international economic skies, this is a very impressive and very re-assuring performance. Overall exports to the EU, which accounted for just over 49 per cent of total exports, increased by 11.4 per cent. Within the EU, export sales to the UK increased by 9.3 per cent and the UK accounted for 10.8 per cent of total exports, which is the lowest market share for the UK in our history. Of course, the overall export numbers are distorted by the contribution of multi-national companies, particularly Pharma, and indigenous Irish exporters are still disproportionately dependent on the UK market. Just less than 36 per cent of exports of food and live animals were destined for the Great Britain market in the first third of the year. Therein lies the Brexit challenge.  

It is worth noting that although exports from the multi-national components of the economy do dominate and do distort the real meaning of the aggregate export data, overall exports of food and live animals did grow by 4.8 per cent in the first four months of the year. This sector is doing well in a challenging environment.

As mentioned earlier, the significance of this export performance and the overall contribution made by the export sector should not be lost on policy makers or the public. It is essential that policy remains firmly focused on ensuring that the sector remains as flexible and competitive as possible in the face of the gathering challenges.

We obviously have no idea at this stage what Ireland’s trading relationship with the UK will look like after October 31st next. However, one would have to have deep concerns about the apparently growing risk of a disorderly Brexit, which would have profound implications for the indigenous exporting sector in particular.

The clear slowdown in global economic activity is also a cause for concern. Central bankers are making heavy reference to these risks at the moment. The European Central Bank (ECB) stands ready once again to do whatever it takes to prevent a sharper slowdown in the Euro Zone economy. It cannot really cut the key official interest rates any further, but the provision of increased liquidity to the financial system remains a distinct possibility. In the US, the Federal Reserve appears to be somewhat willing to start easing interest rates again.

The fact that key central bankers are starting to show signs of behaving in this manner sends a clear message that they are and that we should be concerned about the current health of the global economy. Therein lies another threat to Ireland’s export sector.

Underlying all of these concerns is the fact that President Trump and the Chinese appear intent on ramping up their trade dispute and the threat of further escalation is now a very real one. It is estimated that the tariff measures implemented to date could knock up to 0.5 per cent off global growth this year, and with further escalation, the threat to global growth in 2020 looks potentially more serious.

The dispute between the US and China is no longer just about the trade imbalance between the two countries, and is now drawing in issues such as technology, industrial strategy and currency manipulation. It is difficult to see the logic driving Trump’s strategy, as US consumers look set to become the real losers from his tariff strategy. However, Trump recognizes that if he is to get re-elected, which appears a high probability at this early juncture in the electoral cycle, he cannot risk the current very real downturn in the fortunes of the manufacturing sector turning into something more serious. He obviously believes that increased protectionism will help address the problem.

More fundamentally, the current trend towards protectionism poses an existential threat to the globalization phenomenon that has been broadly positive for the overall global economy over the past three decades, and particularly so for Ireland. 



As the Irish Government puts together legislation to deal with the potential fallout from a ‘no deal’ Brexit, the situation in the UK becomes more farcical by the day. Donald Tusk made a fair point a few weeks back when he queried as to what part of hell is reserved for the Brexiteers who ploughed ahead without any plan or notion as to how the UK might disentangle itself from a legal and economic arrangement that has prevailed since 1973. The notion that the UK could exit easily and painlessly was always ridiculous, but those who voted for and pushed Brexit had as much understanding of how the world works as a catholic priest has about marriage.

It is becoming more apparent by the day that the toll being taken and that will be taken on the UK economy could be quite serious. Nissan, Toyota, BMW and Ford have already made significant announcements about how a ‘no deal’ Brexit will impact on their activities in the UK. This week Honda announced that it was ceasing manufacturing in Swindon by 2022, with the loss of 3,500 jobs. While Honda has made it clear that this decision was not motivated by Brexit, the truth is that when decisions are being taken about where to locate mobile manufacturing investment, why would one want to invest in a country that is walking away from free access to a market of 500 million people and a trading block that has and is continuing to negotiate trade deals with many other third countries. Furthermore, the farcical nature and behavior of UK politics over the past three years would not exactly entice investment in the jurisdiction. The future of car manufacturing in the UK is now under serious threat.

Over the past couple of years I have generally believed that the UK would eventually do a deal with the EU and that at that stage, the UK economy would rebound strongly as the paralysis caused to business investment and consumer behavior by the intense uncertainty would dissipate. However, with just thirty-five days to go to the exit date, we are no nearer a resolution and the damage being inflicted is becoming more permanent in nature.

It is hard to know what Theresa May’s strategy is or indeed if she has one at all. Perhaps she will take it to the wire and then present Parliament with a choice between her Withdrawal agreement and a hard Brexit. If that is her strategy, then it is a very risky one that could backfire very badly. The resignation of the seven Labour MPs from that dysfunctional party due to a combination of anti-Semitism and the party’s handling of Brexit is too little too late. The dysfunctional leadership of Jeremy Corbyn has been very obvious over the past couple of years, and he has always been strongly anti-EU. Why it took those seven until now to stand up and walk away from the party is anybody’s guess. More bizarrely, Corbyn has just re-admitted that radical left firebrand from my youth, Derek Hatton, to the party. Then three brave Tories jumped ship to follow the Labour renegades. One could not make it up, but it does not bode well for the UK and its reputation.

Only a fool or a charlatan could claim wisdom on what happens next, but the long-term damage to the UK economy and more particularly its reputation as a place in which to live, work, invest and do business, remains to be seen.

From Ireland’s perspective, the shenanigans across the Irish Sea, makes us look positively sane and sensible at this juncture. In a few weeks, Ireland looks set to become the only English speaking country in the EU (Malta aside); Cork will be the second largest English speaking city in the EU and Waterford will be the fifth largest. That surely will mean something positive for us?

Last week, the Central Statistics Office (CSO) published merchandise trade data for the full year, and it makes for pleasant reading. Overall merchandise exports expanded by 14.8 per cent, with sales to the Euro Zone expanding by 20.5 per cent, and the region accounted for 35.8 per cent of our total exports. Mind you, the increase of 38 percent in exports to Belgium does show how exports of pharmaceutical produces through that country distort the picture. Exports to the UK declined by 2.2 per cent, and the UK’s market share for Irish exports declined to 11.4 per cent. However, for food and live animal exports, the UK still accounted for 36.8 per cent of total export sales from the sector. Therein lies the challenge, particularly given the comments by Michael Gove this week in relation to the imposition of tariffs on agri-food imports in to the UK in the event of a no-deal Brexit.



After another eventful week in the UK it now appears possible that we are moving gradually towards some semblance of a soft deal on the Brexit front, or at least the prospect of a cliff-edge Brexit is possibly waning. March 13th will be a big day in that regard, but we can probably now afford to possess some sense of optimism than for some time. Of course such is the balminess of the UK political system at the moment, there is still potential for a shock, but the risks are declining due to the fact that some sane politicians who are committed to the greater good of the UK than their own selfish interests are at last starting to exert some muscle. It took a while, but better late than never. However, it would be naïve to under-estimate the skullduggery of the Brexiteers.

Hopefully, the avoidance of a hard-Brexit will give a significant boost to sterling and indeed to the UK economy. Both of those outcomes would be good news for the Irish economy and particularly for the very important agri-food and tourism components of the indigenous economy. Hopefully, not too much longer-term damage has been done to the UK economy by the lunacy that has characterized the country since June 2016. Some manufacturing activity will have been permanently lost, but hopefully other sectors will compensate. We need to be clear that a strong UK economy and a strong currency are undoubtedly in the best interests of the Irish economy.

The Irish labour market in general would benefit further from a stronger UK economy and from the boost to Irish exports that would result from a stronger UK currency, on both the services and the goods side of the export sector. Such a boost to a labour market that is already performing very strongly could be a double edge sword in the sense that it would serve to exacerbate the likelihood of labour shortages and retention and recruitment difficulties in both the public and private sectors of the economy. However, this would still be a better outcome than the employment shock that would definitely result from the UK crashing out of the EU without a deal.

The latest labour market data relating to the final quarter of 2018 shows that employment increased by 50,500 or 2.3 per cent in the year to December to reach 2.28 million, which is the highest level of employment ever recorded in the Irish economy. The annual growth rate did slow from a rate of 3 per cent in the previous quarter and 3.1 per cent a year earlier, but rather than interpreting anything negative, this probably reflects a combination of Brexit induced caution and recruitment difficulties in a labour market that is definitely tightening.

Following the crash in 2008, few believed that the Irish labour market would rebound in the manner that it has. 2012 was the low point of the employment market, and in the six-year period to the final quarter of 2018, overall employment has increased by 387,700 or 20.5 per cent. Over the six-year period all sectors, with the exception of agriculture, recorded growth in employment. The construction sector leads the way with an increase of 58,900, and the accommodation and food services sector came a close second, with an increase of 52,000. The total at work in agriculture declined by 2,900, which is indicative of difficulty recruiting, difficult trading conditions for some components of the sector, particularly beef, and the automation of farming in general, but the dairy sector in particular. All in all it is a positive labour market story, but one that will undoubtedly present its own challenges over the next couple of years as wages rise and recruitment and retention challenges start to become more acute.

At the annual conference of central bankers in Jackson Hole Wyoming last August, the main theme was the failure of virtual full employment in the US to translate into wage pressures. According to the minutes of the last meeting of the European Central Bank, a similar theme was explored in relation to the Euro Zone. The breakdown in the transmission of employment growth into wage growth is puzzling central bankers. Interestingly, in Ireland the latest data show that average weekly earnings increased by 4.1 per cent in the year to the final quarter of 2018. Wage pressures are starting to build here and a soft-Brexit will likely exacerbate those pressures.


I recently completed a report on the online gambling market in Ireland to investigate claims by PLI that online gambling companies pose a threat to the funding of good causes by the National Lottery. PLI has described those companies as ‘parasites that should not be allowed offer odds on the lottery numbers. For a full copy of the report please click here.




On Tuesday next the Minister for Finance Paschal Donohoe will present his third and very possibly the last budget of the current administration. He has been lucky in the sense that the budgets over which he has presided have been prepared against a positive domestic economic backdrop and the global economy has been behaving itself. As a consequence, he did not have to make the difficult choices faced by his predecessors and really only had to decide where to apportion his largesse. However, the stakes are now rising, as the farcical evolution of the Brexit process in the UK promises to do serious damage to important sectors of the Irish economy.
Some of what we have been treated to over the past few days in relation to Brexit should worry us. Arlene Foster’s bizarre comments about the Good Friday Agreement should worry everybody on this island, and particularly those who make their living around the Border region. The stance being taken by Boris is even more bizarre and with every day that passes, the possibility of a very dangerous Brexit outcome is becoming more real.
Paschal Donohoe needs to ‘Brexit proof’ those parts of the economy and those regions that are most vulnerable. Increasing the VAT rate for the hospitality sector would be pure and utter folly and would not take account of business conditions and employment in rural Ireland and the risks they face from Brexit. Between the second quarter of 2011 and the second quarter of 2018, employment in the Accommodation and Food Services sector has increased by 60,400 and the sector now employs 177,100 people, many of whom live in rural Ireland, and particular in the very vulnerable Border counties. To increase the VAT rate for a sector that is so vital to the competitiveness of the Irish tourism product does not make sense. Furthermore, to increase the VAT rate on newspapers would just be another nail in the media coffin.
Michael Noonan and the late great Brian Lenihan have left a strong legacy from their periods in Merrion Street. Whether one agrees or disagrees with the policies they pursued, it is a fact that they presided over the most difficult set of circumstances in modern Irish history and incredibly difficult decisions had to be taken. It is also a fact that the Irish economy today is in the best place for over a decade, and both men should take at least some credit for that. There are obviously many more problems to overcome, but at least we are moving firmly in the right direction.
It remains to be seen what the legacy of Paschal Donohoe will be, but I strongly suspect that it will be a positive one, that is unless he is tripped up by Brexit. I am sure his budget speech next week will contain at least one reference to ‘Brexit proofing’ the Irish economy, and if it doesn’t, then it certainly should. Brexit potentially represents the most significant challenge faced by many sectors of the Irish economy since the crash, and we need to ensure that in the event of a bad outcome, the economy will be as resilient as possible.
Maintaining the special VAT rate at 9 per cent in a sector of the economy that has been so successful in delivering jobs, and one which is now facing immense challenges from Brexit, would make a very positive statement about a real conviction to ‘Brexit proof’ the economy. Any increase in this VAT rate would not be good for the profitability and employment in the hospitality or newspaper sector and would just serve to exacerbate the challenges posed by Brexit. The special VAT rate is a key element of the competitiveness of the Irish tourism sector and should not be sacrificed to trade unions and other interests who seem to have a significant problem with a sector of the economy that supports so many jobs and which is integral to the health and wellbeing of rural Ireland. Of course, an increase in the VAT rate would in the near-term help the public sector unions in their push to increase the public sector pay bill. Please Minister, do the right thing on Tuesday!