State’s growth will be driven by exports from multinationals which face a tax threat from OECD talks
Ireland’s economy is growing at the second-highest pace in the EU as multinational exports surge and the “very strict lockdowns” come to an end, the bloc said.
The European Commission forecast yesterday that Ireland’s gross domestic product (GDP) would rise by 7.2pc in 2021, second only to Romania’s at 7.4pc, and well above the EU and euro area average of 4.8pc.
Irish growth will fall back to 5.1pc in 2022, compared to 4.5pc in the EU and eurozone, “on the back of the partial unwinding of the very large household savings accumulated during the long and very strict lockdowns”, the Commission said in its summer forecast.
Inflation will remain below the European Central Bank’s 2pc target, at 1.5pc in 2021 and 1.2pc in 2022.
The figures are an upward revision on previous EU forecasts, but are more conservative than last week’s Central Bank of Ireland forecast of 8.3pc growth this year.
But changes to global tax rules and “the impact on trade” from an ongoing row with the UK over the implementation of the Brexit deal in Northern Ireland pose risks to the forecast.
Last week Ireland opted out of a global corporate tax deal brokered by the Paris-based Organisation for Economic Cooperation and Development (OECD) due to “reservations” about a 15pc minimum rate on the largest multinationals.
A planned EU digital tax also threatens to throw a spanner in the works, as the US is against singling out its big technology firms.
The EU has delayed its draft until after a G20 finance ministers’ meeting on Friday, but the US wants the bloc to hold off until later this year.
And US Treasury Secretary Janet Yellen is reportedly going to push for an even higher global minimum tax at the G20 meeting.
The US is currently debating its own legislation that would tax American multinationals’ global profits at 21pc.
“Of course, we want to have the best possible cooperation with our American partners and friends,” EU economy commissioner Paolo Gentiloni told reporters in Brussels yesterday.
“We will avoid any interference and undermining of this kind of proposal in relation to the global discussion that we are contributing to, and we are very optimistic this global discussion can reach first results even already this week,”
The Commission predicts all 27 of the EU economies will expand this year.
Ireland was the only EU member to record positive GDP growth in 2020, thanks to exports from multinationals.
Mr Gentiloni said the bloc will meet its target of vaccinating 70pc of adults before the summer is out, and added that there are no immediate risks to the recovery from new lockdowns as a result of the Delta Covid variant.
“We can see exceptions, but we don’t see a tendency toward new restrictions. We see a tendency towards easing existing restrictions,” he said.
“This is the situation right now. Of course, there is only one certainty at [this] time and the certainty is that the vaccination campaign is progressing, that we can reach our target even before the end of the summer, and that we have to go faster in this at global level. This is the only real policy that could take under control the risk of new waves.”