Ireland, the US president Joe Biden said before his visit to the island this week, is part of his “soul”. Yet there are also less poetic reasons for the Republic to be greeted with fondness on the world stage these days. Its economy is expected to be the best performing in Europe this year.
The Irish economy will grow 4.9 per cent in 2023, according to the European Commission. This is a conservative forecast: Ireland’s Economic and Social Research Institute (ESRI) think tank predicts the country’s economy will grow 5.5 per cent this year, and a huge 6 per cent next year.
Across the border, it’s a different picture. Recent months have seen forecast after forecast portending doom for the UK economy. The Office for Budget Responsibility (OBR) predicted in March that the UK economy would shrink by 0.2 per cent this year, faring worse than the European Commission’s predictions for all other major European economies. The OECD also projected in March that the UK economy would shrink 0.2 per cent, the poorest performer in the G20 besides Russia (whose economy will shrink 2.5 per cent).
While the UK government routinely blames the ongoing recovery from the pandemic, a global supply chain crisis, and the war in Ukraine for the poor state of its economy, many economists argue that the major cause is Brexit. Both UK exports and imports will now be 15 per cent lower in the long run than if the UK had remained in the EU, the OBR estimates, and the pound remains a fifth weaker than the dollar compared with before the referendum.
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Ireland, the only EU country with which the UK shares a land border, was repeatedly condemned as doomed during the Brexit negotiations if the UK received a poor deal from Brussels. “The British commentariat was genuinely convinced that Ireland would be clamouring to leave the EU as soon as the UK left, because 99.87 per cent of Irish exports – which consist entirely of Guinness and shillelaghs – went to the UK,” said Dr Brian Lucey, an economics professor at Trinity College Dublin.
The reality, however, has been very different, and for a number of reasons. “The last 40 years,” observed Kieran McQuinn, an economist at ESRI, “has seen a huge divergence between the Irish economy and the UK economy. The last five, six years since the Brexit vote have only increased that protraction.”
Ireland’s membership of the EU – and of its customs union in particular – has “allowed Irish businesses to hugely expand their reach, and not just rely on the big neighbour next door”, said Lucey.
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Certain areas of the Irish economy have flourished in recent years, capitalising on the country’s access to a market of 450 million people, and its 12.5 per cent corporate tax rate. Ireland’s tech sector, for example, has seen the likes of Alphabet, Amazon, Apple, Facebook, Intel and Microsoft set up major operations in the country, and Ireland’s 106,000 tech workers are five times more productive than the European average, according to the ESRI.
The country’s pharma sector is another success story, with nine of the world’s ten largest pharmaceutical companies building plants in the country. Ireland is now the largest net exporter of pharmaceuticals in the EU, and its products account for over 50 per cent of all exports from the country.
Ireland has drawn international companies to establish subsidiaries in the country because of its low-tax regime, educated workforce, stable political background and its use of the English language. It used to compete with the UK as a European base for such multinationals. But now Ireland is the only EU country where English is most inhabitants’ first language. There has been a “steady trickle” of companies moving operations from the UK to Ireland, noted Lucey. Dublin’s financial sector has been a particularly big winner: the city attracted 135 financial companies between mid-2016 and early 2021 – around a quarter of all finance firms’ Brexit-related moves, according to a report by the think tank New Financial.
Ireland’s appeal is enhanced by its low corporate tax rate, whereas the UK’s is rising from 19 per cent to 25 per cent this year. This may help explain why, according to a recent report from a US-Ireland business report by the American Chamber of Commerce, that both the US and Ireland continue to reach “record levels of growth and investment”. In 2022 alone there were 167 new US investment announcements in Ireland.
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“Following Brexit, Ireland stands as the transatlantic gateway to the European Union,” wrote the Sinn Féin leader Mary Lou McDonald in the American Chamber of Commerce report. “There is no good Brexit for Ireland, but the economic opportunity is clear.”
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In 2021, UK trade only accounted for 13 per cent of Irish exports, and 20 per cent of Irish imports. These statistics also mean that Ireland is one of just seven EU countries that the UK has a trade surplus with, which was worth €5.4bn in 2020.
The UK’s departure from the customs union saw its trade surplus with Ireland shrink to €1.3bn in 2021. “It is very strange to us here in Ireland to witness such an own goal,” said Lucey. “With the UK, it’s literally a case of ‘you need us more than we need you’, because Ireland is one of the few countries with whom the UK runs a good trade surplus.”
Irish exports have been “powering ahead” into the UK since it left the customs union, added McQuinn. They grew 24 per cent in 2021 year-on-year. This is in part because the UK has not been implementing customs checks on its side to avoid hindering the flow of goods into the country. The EU has been implementing its checks, however, creating tailbacks in the UK and hitting UK exports.
“The UK could have had [a softer] Brexit and nobody would have noticed, and everybody would have been happy,” said Lucey. “But the way in which the politics worked out, you ended up with the hardest possible Brexit, which nobody was overtly looking for in the early years.”
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It is not all positive. Ireland has also been hit by high inflation and cost-of-living pressures, while economists point out that Irish GDP figures are typically inflated by foreign multinationals reporting profits in the country.
Even if Brexit has presented as many opportunities as problems for Ireland, other events in the UK could yet throw the country off-track. “The major concern for Ireland is geopolitical: the destabilisation of the Union,” warned John FitzGerald, the former head of macroeconomics at ESRI. “The danger of Scottish independence creating an orphan Northern Ireland [which retains strong cultural and religious ties with Scotland] is very real. And the cost of Irish reunification could result in a real crisis on the island.”
For now, however, Brexiteers’ warnings about poor Irish prospects have not played out. “From a headline point of view, the Irish economy is doing well,” said McQuinn. “Irish firms are switching from the UK to the EU for supplies, which may cause problems for the UK, but represents only limited hassle for Ireland.”
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