The Irish economy has held up well in spite of challenging global events but headwinds suggest we will be operating within an increasingly uncertain international arena throughout 2024. Here are global and domestic developments to take stock of that will no doubt impact on business and the economy.
In 2023, we saw the global geopolitical situation deteriorate further with an increase in conflict and the resultant human tragedy. While secondary by a long stretch, the economic impact is likely to be depressing on the global economy.
Meanwhile, relations between the United States and China, although the subject to a slight thaw due to the recent APEC meeting between president Joe Biden and president Xi Jinping, remain decidedly frosty. Pressure on other countries to pick sides is likely to increase if relations deteriorate further.
A direct result of geopolitical issues has been the redrawing of global supply chains. Near-shoring, reshoring or friend-shoring will continue to be front and centre in 2024. Countries that will benefit most from these adjustments are in southeast Asia. India is likely to be a key beneficiary. Mexico is also likely to benefit.
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The role of countries like Ireland, with higher cost bases, in such a scenario is more unclear. If there is any chink of light in all this from an economic perspective, Ireland’s perceived stability both politically and economically continues to make it attractive to investment.
Global economic growth projections are subdued. The International Monetary Fund is suggesting global growth in 2024 will be 2.9 per cent. All the evidence points to the fact that any growth that will take place in the medium term is more likely to happen in the east rather than the west, driven by demographics, growing middle class markets and investment.
GDP projections for the US and euro area stand at 1.5 per cent and 1.2 per cent respectively. In Ireland, we expect to see underlying modest single-digit growth, running at little more than half the growth we have experienced in recent years. Inflation is falling and the expectation is that interest rates should follow, but how quickly?
From January 1st, Pillar Two of the OECD tax agreement will come into operation. For the first time since 1999, Ireland will have a rate of corporate tax for trading income other than 12.5 per cent. A 15 per cent effective rate will apply to companies with revenues of more than €750 million. This development is unlikely to have any significant impact on Ireland in terms of its ability to attract investment and the exchequer impact of this change will not be felt until 2026.
Discussions on Pillar One that could arguably have much more impact for Ireland have not progressed quickly during 2023 and reaching any consensus in 2024 looks challenging. We might see the EU push ahead with its own tax reform plans but with unanimity required here, again progress looks challenging.
In Ireland, we have seen corporation tax continue to perform at extraordinary levels as evidenced by the November exchequer returns. The Government is right not to rely on this source for current expenditure. More focus on ensuring that Ireland remains attractive to the investments that generate this return might be a good new year’s resolution.
At both European and Irish level, the proliferation of regulation in train or coming down the tracks will be something that companies will be keenly aware of, including the implementation of the Digital Services Act, the Digital Markets Act, and the Corporate Sustainability Reporting Directive.
Europe continues to lead the charge in these areas. Businesses have had to file their 2023 gender pay gap reports in December based on their snapshot from June 2023. Smaller organisations with 150 or more employees will have to report from 2024 onwards.
Artificial intelligence (AI) is an area Europe proposes to lead on and it is already showing form on, at least from a regulatory perspective. The European Parliament and Council reached a provisional agreement on the law on December 9th, after months of negotiations. Lawmakers will be hoping to make further progress in 2024 with a view to the AI act applying from 2026.
Some believe that Europe may have gone too far. Others believe that defining the rules of the game early puts Europe in pole position and allows companies to know the specified parameters within which they can innovate. AI may be at the top of the Gartner hype curve, but no one is suggesting that AI is not going to have a profound impact across all aspects of our professional and personal lives over the coming years. Expect to see an increasing number of cases coming to the fore in 2024.
The IDA results published this month show a resilient performance from a foreign direct investment (FDI) sector that has been under huge pressure. While overall employment in FDI fell marginally for the first time in more than a decade, employment in the sector remains at 300,000-plus. IDA’s new year’s wish will be that most of the losses in the tech sector have washed through at this stage.
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One of the features likely to continue into 2024 is countries and economic blocs trying to outbid one another with significant subsidies for large investment projects in areas like chip manufacturing and renewable energy. Ireland will not be the only country trying to figure out what its response is to this phenomenon. Aside from the ability of countries to write big cheques, the question is, does it make sense?
What needs to be next? To continue to grow the economy, within a challenging international context, next year needs to be a year of delivery on some of the perennial issues. Addressing challenges including housing, infrastructure, planning, and the funding of higher education are the table stakes for continued economic growth.
Of course, the other thing that 2024 might deliver is a general election.
Martin Shanahan is a partner at Grant Thornton and former CEO of IDA Ireland
