Back in 1964, Bob Dylan sang “The times they are a changing”. Fast forward to 2017 and one must wonder what this Nobel Laureate would now sing given the unprecedented changes taking place in the world, particularly those affecting two of Ireland’s main trading partners, the United States of America and Great Britain.
Ireland, as a small island with an open economy which is built on international trade, will always be affected by political and economic changes in the EU and the US. We have been affected here in recent times; by the 2008 collapse of Lehman Brothers triggering a global recession and resulting in Ireland requiring EU-IMF financial assistance in 2010.
Since then, the Irish economy has performed strongly. GDP growth for 2016 is expected to be 4.2% with forecasted growth of 3.5% in 2017, significantly higher than EU and OECD equivalents. Unemployment at 7.3% of the labour force in late 2016 is forecasted to fall to 6.8% by the end of 2017 (down from a high of 15.1% in 2012). Gross Irish Government debt peaked as a percentage of GDP in 2013 at 119.5%. This debt ratio is expected to have fallen to 76% by the end of 2016. The recovery in the Irish economy has been driven by a number of key factors:
- A young, well-educated and highly adaptable workforce with relatively stable labour costs,
- A population which is pro-enterprise, accepts change and is positively focused on the future,
- A progressive tax system which encourages economic growth in an environment of legal and fiscal stability,
- One of the most advanced and competitive IT and telecoms infrastructures in Europe,
- Membership of the EU and euro currency zone, providing easy access to the EU internal market.
We are waiting to see how President Trump’s economic plans and Britain’s triggering of Article 50 of the Treaty of Lisbon will affect the global economy and Ireland in particular. Forecasts of immediate economic Armageddon by some commentators have proven to be misjudged and ill founded. However, there is no doubt that there will be peaks and troughs ahead as the world adapts to a changed environment in the US and UK.
Looking forward, we believe that there will continue to be strong interest in Ireland from multinational companies, whether through organic growth (foreign direct investment) or by acquisition of indigenous Irish companies.
IDA, the Irish State body which is responsible for inward investment recently announced that the pipeline of foreign companies wishing to establish or expand in Ireland was promising for the first quarter of 2017. The Investec M&A Tracker is also forecasting an increase in M&A activity during 2017, with one key factor being the continued acquisition of Irish technology companies by international trade players or technology-focused private equity. Some commentators have also expressed an expectation of increased capital markets activity in the US which, if realised, should have positive knock-on effects for Ireland in terms of availability of funds for investment and acquisitions.
These forecasts are consistent with our own expectations. During 2017, we anticipate increased activity, particularly in the following sectors – IT & telecoms, life sciences, energy and food/food services.
In the short term, Brexit is likely to influence decision making in favour of Ireland as a location for US multinationals. We also expect some UK companies to consider acquisitions in Ireland as part of a post Brexit strategy. Ireland has shown in recent years that it can adapt to the challenges presented by a changing world economy, whilst continuing to attract businesses to Ireland. We expect this positive trend will be maintained during 2017.