The unexpected collapse of Ireland is frightening

Irish GDP at current prices (excluding inflation) has increased six-fold since 1999. Although this miracle has been questioned due to the significant impact on GDP of the growing profits of multinational corporations that have settled there, the fact is that the economy Ireland has undergone radical change since then.

Compared to an unemployment rate of 16% in the mid-1990s, Ireland’s unemployment rate today is just over 4%. In addition, the per capita income of the “Celtic Tiger” is one of the highest in the world.

However, this miracle could run out of gas. It is about to be discontinued or perhaps the end of the model. What is happening in little Ireland may be a symptom of global change that is curbing globalisation.

Ireland’s economy is changing

Ireland’s economy grew by more than 6% during the Covid pandemic, while the economy of other countries such as Spain contracted by more than 10%. The strong presence of multinational technology companies (and their benefits) in Ireland’s productive fabric has enabled this other ‘miracle’ within a ‘miracle’. However, something seems to have changed in its economy in recent months.

The question now is whether this is a temporary pause or a global shift that could affect the open Irish economy for many years. Transnational agreements to set a minimum corporate tax of 15%, agree to tariffs, regionalize supply chains and repatriate some companies will initially affect these very open economies (exports and imports represent a large portion of GDP) It depends largely on foreign direct investment by multinational companies. Settlement in the areas concerned.

At the moment, the only thing that is certain is that the Irish economy is experiencing an unexpected recession. In 2023, while the unemployment rate fell in the eurozone, it rose in Ireland by about one percentage point. On the other hand, in three of the last four quarters, GDP declined with some force. In the last available quarter (the third of this year), the decrease reached 1.8%. On an annual basis, the decline in GDP was 4.7%. This means that the Irish economy today is 4.7% smaller than it was a year ago, according to the latest Eurostat figures. Ireland, one of the fastest growing euro economies, has become the largest “ballast” with Estonia.

The Irish economy is facing an unexpected recession

The trend reversal was sharp and sudden

This was the move that destroyed the Irish economy to the European Commission’s expectations. At the beginning of the year, the European Commission expected the Irish economy to grow by 5.5% this year. However, the latest forecast predicts a clear recession scenario, with GDP shrinking by 0.9%. It is not yet clear whether the slowdown is just a temporary pause, something more serious, or even the end of the miracle. All indications are that the period of rapid globalization that began with the fall of communism in the late 1980s and paved Ireland’s path to prosperity (achieving one of the highest per capita GDPs in the world) is now over.

From Brussels, they believe this disruption is just a temporary pause in the process: “This slowdown is mainly affected by some key sectors dominated mainly by multinational export companies. The latest European Commission report said that adjusted domestic demand (a type of GDP that isolates the impact Profits of multinational corporations (MNCs) continued to grow, albeit at a more subdued pace amid rising inflation which slowed household and corporate spending.

In addition, “private consumption is expected to grow modestly in the coming quarters as tight economic conditions weigh on household spending. However, a strong labor market and rising real wages are expected to support consumption through 2024 and 2025. However, Brussels is betting on That the Irish economy will grow by more than 3% again in 2024 and 2025. Let’s see if their forecasts are more accurate this time.

External risks to Ireland

On the other side appears the International Monetary Fund, which, although cautious and full of doubts, emphasizes the threats to the “Celtic Tiger”: “The outlook is clouded by important external risks: prices, the escalation of Russia’s war in Ukraine, or the global financial crisis.” The conflict between Israel and Gaza and tighter-than-expected global financial conditions pose risks to Ireland’s outlook.

In addition, the IMF asserts that some of the factors that were key to the Irish miracle have diminished: Ireland’s small, highly open economy is likely to be significantly affected by fragmentation and geo-economic crisis in the coming years.

There is also another risk which is financial. The monetary institution noted that systemic financial risks have increased, although there are mitigating factors.

The report noted that tighter financial conditions (as a result of aggressive interest rate increases by the European Central Bank), persistent inflation and increasing vulnerabilities in the commercial property market and its links to informal banks are key factors contributing to increased risks. International Monetary Fund.

At the same time, households remained resilient in the face of rising interest rates and rising costs of living, while domestic corporate insolvency rates rose modestly. The residential real estate market remains vulnerable to further rise in interest rates.

With all this said, Ireland faces several fronts that should not be trifled with. Her wonder is in danger of fading. However, the Irish themselves do not seem concerned.