Key Takeaways
- Brexit and the pandemic have propelled Ireland to become the fastest-growing economy in the EU
- Low business rates and Brexit have encouraged foreign investment in Ireland
- Growth could slow down as key sectors are now under threat
While governments across Europe and the world are grappling with tanking finances and record borrowing, the Irish economy has been thriving.
The Irish economy: An overview
Irish GDP grew at a nominal rate of 6.2% in 2020, according to EU Commission data, despite the massive disruption to economic activity caused by the COVID-19 outbreak.
This was followed by two bumper years of 13.6% growth and 12% growth in 2021 and 2022, respectively, making Ireland the fastest-growing economy in the EU.
Ireland has attracted massive foreign investment by offering some of Europe's lowest corporate tax rates. Its 12.5% business rate compares to a 21.3% average in the EU and a 19% rate in the UK. The favourable business environment fostered by the Irish government has long attracted big multinationals to invest and set up in the country, leading to massive economic growth over the past decade.
More recently, UK manufacturers, service companies and financial firms have sought refuge in Ireland to maintain access to the lucrative European market, boosting Irish domestic production and exports.
In fact, the budget surplus in Ireland is now so significant – at 3% of gross national income in 2022 and projected to reach 6.3% by 2026 – that the Irish government has opted to open a new sovereign wealth fund to protect against future economic shocks.
The Irish finance sector reaps Brexit rewards
The Irish finance sector has taken up the opportunity that Brexit has afforded. With the threat of losing EU passporting rights, London-based financial firms looked to divest out of the City and into big EU financial bases like Paris, Frankfurt and Luxembourg, but Dublin was the big winner.
According to New Financial, Dublin ushered in 135 new financial companies between mid-2016 and early 2021, equating to one-quarter of all Brexit-related moves.
The influx of capital to Dublin has ushered in a new era of growth for the Irish financial sector. Irish fund management revenue is set to climb at a compound annual rate of 7.3% over the five years through 2023, reaching €11.5 billion.
But more recently, high interest rates and stagnating finance markets have troubled the global financial sector, causing the collapse of Silicon Valley Bank and Credit Suisse. This financial turmoil has been felt in Ireland and financial revenue has stagnated since 2022.
The tech sector thrived after the COVID-19 outbreak but is showing signs of faltering
Since 1956, when IBM became the first US tech giant to set up a regional headquarters across the pond, Ireland has been among the most popular tech destinations in the world. Many western tech multinationals now have operations in Ireland, including Apple, Microsoft, Amazon, Meta and Google.
The pandemic created the perfect conditions for a global tech boom, especially in Ireland. It accelerated the adoption of digital transformation, prompting increased reliance on technology for remote work, online education and communications. E-commerce and streaming services also benefitted from people being stuck at home due to lockdown restrictions.
Investment into Irish tech companies reached €1.6 billion in 2021, according to TechIreland, increasing by nearly €1 billion from the €707 million raised in 2019.
The outlook for the tech sector is bleaker. The revenue boom at the height of the pandemic has waned and many tech companies have been forced to announce job cuts that reversed hiring streaks in 2020 and 2021. At the end of April 2023, there have already been 168,000 tech layoffs globally in 2023, according to the website Layoffs.fyi, exceeding the total number of layoffs in 2022.
Pharma boom leads to renewed investment
Ireland is one of the largest pharmaceutical exporters in the world. Its access to high-tech machinery, skilled workers and its low business rates have made it an attractive location for pharmaceutical firms to place their EU operations.
Like the tech sector, the pandemic afforded pharma companies opportunities to bolster revenues, not least of which was the race to develop and manufacture a vaccine for the virus.
In May 2021, pharma firm Pfizer announced it would invest U$40 million (€38 million) in its Dublin facility to start producing an mRNA drug substance used in producing the COVID-19 vaccine.
The company's Ireland revenue is projected to have more than doubled in 2021 as its vaccine was exported worldwide. In total, pharmaceutical preparations manufacturing revenue grew by 17.3% in 2021.
Pharmaceutical revenue in Ireland is set to continue to rise, as pharma companies have used their windfall pandemic revenues to reinvest in their Irish manufacturing. In December 2022, Pfizer announced its intent for an additional €1.2 billion investment in its Dublin site to build a new facility due for completion in 2027.
Final Word
The combined effects of Brexit and the COVID-19 pandemic propelled Ireland to the forefront of economic growth within the EU. Ireland has attracted foreign investment for a long time using low business rates. Brexit boosted its success, as it’s an ideal location for businesses seeking to maintain an EU presence. However, with the economic and societal effects of the pandemic waning, the economic landscape is changing and key growth sectors may begin to stagnate.
This could be compounded by the announced hike to corporate rates for companies earning over €750 million to comply with the OECD agreed 15% minimum rate. The threat to foreign investment impends a potential slowdown in the economic growth that Ireland has enjoyed over recent years.
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