World of finance awaits Trump presidency

Rather than dusting down the harp and red carpet that greeted businessman Donald Trump on his visit to Ireland in 2014, the Government will now be readying a battle plan to keep US companies domiciled here from his grasp.

It was the week when the acrimony of the US election was supposed to end and the world could get back to business as usual, but it didn’t turn out that way. Trump’s accession to power brings with it an uncertain global economic landscape.

Nobel prize winning economist Paul Krugman warned that the world is “very probably looking at a global recession” with “no end in sight” following the election. So far the markets do not agree.

As news of Trump’s stunning victory emerged late on Tuesday night and into Wednesday morning, global stock markets and the dollar plunged, while Mexico’s peso sunk to its lowest-ever levels.

Concerns about a Trump victory had weighed heavily on the peso for months over his threats to rip up a free-trade agreement with Mexico and tax money sent home by migrants to pay for building a wall on the southern US border.

Early turbulence in financial markets however gave way to calm and then gains as investors reassessed the consequences of the surprise result. The Dow Jones hit a record high, though technology shares faltered as investors worried that optimism about Trump’s pro-business policies might have moved too far, too fast.

Corporation tax cut

In the Republic, still reeling from the shock of Britain’s vote to leave the European Union, Taoiseach Enda Kenny and Minister for Finance Michael Noonan scrambled to heal wounds with Trump who Kenny referred to as “racist” some months ago.

Alarmingly for Merrion Street, a senior economic adviser to Trump didn’t take long to suggest large numbers of US companies will leave the Republic and relocate to the US to take advantage of a new corporate tax regime Trump has pledged to put in place.

Stephen Moore said the centrepiece economic plan of the new administration would be wooing back multinationals from overseas, involving a cut in the headline corporation tax rate from 35 per cent to 15 per cent.

Such a move would potentially threaten significant numbers of jobs in Ireland, where the rate is 12.5 per cent, but senior corporate advisers here say they do not believe established companies will leave.

However, most accept that Mr Trump’s tax policy, if implemented, would make it more difficult to attract future US investment by removing the incentive for US firms to locate overseas to cut their tax bill.

Noonan downplayed that speculation, though, suggesting the 15 per cent rate may never happen. “It’s the repatriation of profits that is the primary issue,” he said. “Now, if you reduce that to 15 per cent, it seems to me that that is not an disincentive for setting up abroad.”

Construction boost

It's not all bad news for Irish companies, with some standing to benefit from Trump's election. Construction company CRH could be "one of the biggest winners" of Trump's infrastructure policies, according to David Holohan, chief investment officer at Merrion Capital.

“CRH has the largest exposure in the [US] building materials sector to highway spending and will be a key beneficiary of an increased focus being placed on improving bridges and highways,” he said.

Kingspan, the maker of insulation boards and raised access flooring, also stands to benefit from increased construction spending in the non-residential sector.

Brexit

The long-term impact on the Republic of that other economic nightmare, Brexit, was laid bare by the Economic and Social Research Institute. It is likely to be “severe” with economic activity 4 per cent lower in 10 years time than it would otherwise have been.

The institute also warned of negative consequences for employment, wages and public finances lasting for at least 10 years. It said the initial shock to the Irish economy will be transmitted via the trade sector in the form of a drop in export demand from the UK.

Under a “hard Brexit” scenario, with the UK leaving the single market altogether, Irish gross domestic product (GDP) is expected to be 3.5 per cent lower than it might have been within five years, equating to nearly €10 billion in lost output.

Over a 10-year period, the potential contraction in GDP is projected to be 3.8 per cent.

The “hard Brexit” scenario, which assumes the reintroduction of trade tariffs, is also predicted to push unemployment 1.9 points higher than it might have been, while reducing average wages by up to 3.6 per cent.

The fall in output and employment is also likely to translate into reduced Government revenue from a range of taxes, while the increase in unemployment will necessitate greater Government spending on welfare.

The European Commission was obviously in agreement, downgrading its economic forecast for Ireland for next year to 3.6 per cent, citing heightened risks since the British referendum.

In its autumn economic forecast, the commission said it expects the Irish economy to grow 3.6 per cent next year, compared to a growth rate of 3.7 per cent forecast in May.

It said Ireland’s economic activity is expected to remain strong, driven by domestic demand and job creation, but it warned that “risks have heightened considerably” since the referendum.

High rents

Back to the present, and there was a stark warning from the property website daft.ie. It said the Republic’s rental crisis is having a “disastrous effect” on social cohesion with rents in Dublin now almost 10 per cent higher than their previous peak in early 2008.

Its latest quarterly rental report showed rents rose nationwide by an average of 11.7 per cent in the year to September, which was the largest annual increase ever recorded in the Daft.ie report.

There were double-digit rent rises in 37 of the 54 markets analysed, up from just 17 markets as recently as late 2015. In addition, at €1,077 in the third quarter of the year, the average monthly rent nationwide is at an all-time high.

Separately, an ESRI report said house prices have overcorrected since the property crash in 2008, resulting in an “artificially low” tax take from the sector.

The research concluded that “housing-related taxes can be expected to recover quite significantly over the medium-term”.

The ESRI authors said this would have implications for the formulation of budgetary policy and the way in which the structural budget balance is estimated.

Ryanair looks up

Despite all Michael O’Leary’s Brexit doom and gloom, Ryanair announced it expects to be carrying more than 200 million passengers a year by 2024 as rivals retrench and it pursues growth in eastern and central Europe.

Profits at the Irish carrier grew 7 per cent to €1.17 billion in the six months to September 30th, the first half of its financial year, while revenue rose 2 per cent to €4.13 billion.

Web Summit wifi wobble

Following its much-publicised flight from the Republic, the Web Summit kicked off in its new home of Lisbon this week but not without a hiccup or two.

Co-founder and chief executive Paddy Cosgrave was forced to abandon a Facebook Live demo on stage when the wifi failed.

Infrastructure was among the reasons given for the Web Summit’s move to Lisbon, with wifi a particularly contentious issue in its final years in Dublin, although Cosgrave was insistent that it was his mobile network that was to blame.

A second demo later in the night proved more successful. “Web Summit is never perfect,” said Cosgrave. “But if we find something wrong we fix it.”

Business Week Colin Gleeson