Ireland’s reliance on tech sector poses economic risks if downturn worsens, Central Bank warns

While job losses in Irish tech sector have been relatively ‘small’ to date, economy remains sensitive to fortunes of specific firms

Ireland’s reliance on the international tech sector poses risks to growth, employment and tax revenues in the event of a severe or prolonged downturn, an article published by the Central Bank of Ireland warns.

The authors of the report recommend that the risk is lessened through policies that increase investment and productivity in indigenous tech firms, while they also say the negative effects of any future sectoral downturn will be reduced by the Government’s recent policy of saving corporation tax bonanzas in the National Reserve Fund.

The article, by Thomas Conefrey, Enda Keenan, Michael O’Grady and David Staunton, notes that the information and communications technology (ICT) services sector has expanded rapidly in Ireland, with employment almost doubling since 2010, but that the global tech sector has been undergoing a correction since mid-2022.

They conclude that the number of job losses in the Irish tech sector to date, estimated at more than 2,300, has been “small, relative to the existing workforce”.


However, the concentrated nature of profits within the sector indicates “important risks to growth, employment and tax revenues” if a more severe or prolonged downturn was to materialise.

“The sector is dominated by a small number of foreign-owned multinational enterprises (MNEs) that account for the majority of output, employment and tax revenue. In contrast, the domestic part of the sector has expanded more slowly and accounts for less than 10 per cent of overall ICT output,” the article notes.

“This suggests that the capacity for the domestic part of the sector to absorb any loss of activity from foreign-owned firms may be reduced, should a more serious contraction in MNE-based ICT activity occur.”

The tech sector’s footprint is such that it accounted for 6.4 per cent of employment, almost 12 per cent of all income tax revenue and 21.3 per cent of corporation tax revenue – a sum of €3.3 billion – in 2021.

Overall profits in the sector are “highly concentrated”, implying that corporation tax revenue is “sensitive to developments affecting specific firms, or a small number of firms, in the sector”.

The ICT services sector accounts for 9.6 per cent of the economywide wage bill and just under one-quarter of corporation tax revenue, the Central Bank article says, with the pace of growth in the sector from 2018 to 2021 between two and three times higher than it was for the economy as a whole.

In the fourth-quarter of 2022, employment in ICT stood at 164,600, Central Statistics Office (CSO) data suggests, with this tally up 29.2 per cent compared to the fourth-quarter of 2019 – the fastest pace of employment growth across all sectors over this period.

Detailed CSO data shows that much of this increase has been in high-skilled computer programming roles, with growth in occupations such as software developers and system analysts. A third of employees in the sector are foreign nationals, the highest such proportion across all sectors.

However, 2022 also brought a phase of rapid growth since the pandemic came to an end, with Facebook owner Meta, Twitter, Google’s parent company Alphabet, Microsoft and Salesforce among others announcing job losses in recent months.

To date, the number of confirmed lay-offs in Ireland is 1,474, representing just more than 0.9 per cent of the ICT services workforce. But the authors of the Central Bank article state that the figure is almost “certain to represent an underestimate” of total job losses, adding that the figure would rise to 2,307 (1.4 per cent of total workforce) if the number of lay-offs in the Irish entity was proportional to their share of the overall global workforce.

The article echoes concerns that were highlighted by the Department of Finance last year as corporation tax receipts came in ahead of expectations throughout 2022.

Minister for Finance Michael McGrath last month confirmed the transfer of €4 billion from the exchequer’s central fund to the National Reserve Fund, following an earlier €2 billion transfer. These moves were first flagged in a Budget 2023 measure, announced last September by predecessor Paschal Donohoe, in a bid to de-risk the public finances.

Laura Slattery

Laura Slattery

Laura Slattery is an Irish Times journalist writing about media, advertising and other business topics