How we can grow home-grown productivity here?
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What is the main topic discussed in this episode?
Breakfast Business with Enterprise Ireland on Newstalk.
What are the risks of Ireland's dependence on American multinationals?
there was another serious warning about Ireland's over-dependence on a small cohort of mostly American multinationals today. The ESRI said that these firms were making substantial positive contributions to the country, but potential job cuts and America's tilt towards nationalism could jeopardise that foreign investment and ergo growth in Ireland. The report also looks at how we can grow homegrown productivity here. Professor Martina Lawless is the director of the ESRI and is on the line. Good morning, Martina. Good morning. Pleasure to be here. Now, Martina, can you break down your assessment along scenario lines, i.e. how our economy would respond to a series of headwinds or scenarios? Let's start with the competitiveness scenario, whereby wages might fall notably among our big trading partners.
Yes. So what we're looking at is over a 10 year horizon. And obviously, when you're looking that far into the future, it's very hard to say anything with great certainty. So we're not talking really about forecasts. We're talking about the general trajectory of the economy and then a number of things that could knock it off course. One of those things is an increase in the Irish economy. cost base so that we would lose competitiveness against our major trading partners. We could see that could come from many different sources. We've already seen the infrastructure gap in Ireland, costs of housing, of utilities and so on. They could make it more expensive for Irish firms to do and multinationals located in Ireland to compete on the world stage.
And our scenario, which we calibrate as an increase in Irish costs relative to the Irish economic output, GNI star, by about 3.2% by 2030 compared to the level it would have been at otherwise.
So 3.2% gross national income is still not a bad rate of growth though, is it?
It's still not a bad rate of growth. It's lower than it would have been otherwise, but it's still...
Oh, dear. We appear to have lost Martina there for a moment. We're going to try and get Martina back. And when we do, I'll come back to her.
Apologies. You're back.
We lost you there. We're talking about 3.2 percent GNI is not bad, but it could have been better. Let's move across to another scenario. If there's a global economic slowdown.
Yes. So one of the kind of really striking underpinnings of the Irish economy and its growth over the last 10 years has been the levels of obviously foreign direct investment and exports in the Irish economy. That's driven our growth for a long number of years. But that means that anything that happens in the international economy is really a very high risk directly impacting Irish growth.
How does competitiveness impact the Irish economy?
So where we see that impact is a larger decline up to a 3.2%. Actually, a similar decline in GNI star, a slightly more moderate decline in consumption and household income. But in any event, pretty much all of the substantial risks that we see to the Irish economy over the 10-year horizon really come from external factors because we're so reliant on trade and an open global economy for our economic success.
Yeah. In terms of the multinational sector cutting jobs here, i.e., let's say pharma starts cutting jobs rapidly for whatever reason, be that tariffs or be that, you know, efficiencies elsewhere. And what impact would that have on our growth?
Yes, that's the third of the sort of risk scenarios that we look at is that there would be a decline in investment and employment in those multinational sectors. And we see that reducing GNI Star by about one and a half percent. The multinationals are very important in a fiscal sense. They're very important to GDP, but because they're mostly foreign companies, there's slightly less of a direct impact on GNI Star.
Whereas the productivity gap between the foreign investment sector and the domestic homegrown economy is quite substantial. And you had a look at that gap as well.
Yeah, so on the slightly more kind of positive scenarios, there's been a longstanding discussion of sort of a dual economy structure in Ireland, whereas the foreign multinationals are much more productive.
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