Monday 24 November 2014

'Patent cliff' knocked 1pc off economic growth, report finds

Colm Kelpie and Dara Doyle

Published 10/10/2013 | 05:00

ESRI professor John Fitzgerald
ESRI professor John Fitzgerald

ECONOMIC growth would have been one percentage point higher this year if it wasn't for the effects of the so-called patent cliff, the Department of Finance has said.

Over the last couple of years a number of blockbuster drugs produced by the pharmaceutical sector in Ireland have seen their patents expire, knocking the value of Ireland's exports.

The department told the Oireachtas Finance Committee that if the patent cliff hadn't occurred, growth this year would have been estimated at 1.2pc, instead of the flat projection of 0.2pc unveiled by the department on Tuesday.

The calculation comes as the Economic and Social Research Institute (ESRI) published a research paper on the effects of the patent cliff.

Research professor John FitzGerald said the output value of a firm will fall by a very significant amount, even if the firm continues to produce the same drug after the patent expires.

"Given the importance of the pharmaceutical sector to Ireland, such changes may well affect macro-economic aggregates in a noticeable fashion," Mr FitzGerald said.

However, the think tank said that if the loss of revenue from the ending of patents is treated as a loss in royalties to the multi-nationals producing the drugs, both GDP and GNP would be largely unaffected, unless the plant closes.

The main effect would be on exports and imports.

Meanwhile, Merrion Stockbrokers forecasts no growth in the economy this year, before rising to 1.5pc in 2014.

It said unemployment would hit 13.5pc in 2013 and fall further to 12.5pc next year.

It said few surprises were expected in next week's Budget, with the debate about whether the adjustment is €3.1bn or €2.5bn being irrelevant.

"Ireland is close to the end-game as regards its EU/IMF bailout is concerned and the key goal now is to ensure that we don't let the baton slip so close to the finishing line. We don't envisage any problems," it said.

"Markets at the moment appear more fixated with political developments in the eurozone, and so any risk to the stability of the Fine Gael/Labour coalition and/or signs of internal political fighting within the parties is likely to be a bigger concern for bond investors in our opinion."

It comes as an EU official said Ireland may find it helpful to seek a precautionary credit line as it leaves the bailout. It's for the Irish Government to decide, the official said on condition of anonymity.

Given that Ireland can access bond markets and has built up a cash reserve, a precautionary line may not be needed, the official said.

Irish Independent

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