Wednesday 21 February 2018

Trump tax reforms and housing cloud 'robust' growth

Spending, driven by private consumption and construction, has returned to pre-crisis levels. Stock Image: Bloomberg
Spending, driven by private consumption and construction, has returned to pre-crisis levels. Stock Image: Bloomberg
Dearbhail McDonald

Dearbhail McDonald

US President Donald Trump's recent tax reforms pose a threat to Ireland's foreign direct investment (FDI) offering, with risks to the country's corporate tax take according to Goodbody's latest Irish Economy Health Check.

The stockbroker has also warned that the ongoing housing shortage is a strong headwind facing the Irish economy, which is otherwise experiencing "remarkable growth".

Goodbody is forecasting core domestic demand growth of 4.3pc this year, placing Ireland among the fastest growing economies in the euro area. Spending, driven by private consumption and construction, has returned to pre-crisis levels.

However, Goodbody chief economist Dermot O'Leary has warned capacity constraints will become more visible this year in areas such as the labour market and infrastructure.

"Having moved beyond the recovery phase to surpass previous peak levels of spending, the challenge for Ireland will be to deal with impending capacity shortages, thus ensuring growth into the medium term," he said.

"While generally positive on the economic outlook, Goodbody is warning that Ireland is still facing headwinds, including an ongoing housing shortage and a threat to foreign direct investment from US tax reforms. However, employment and disposable income growth will remain robust."

Capacity shortage worries: Goodbody’s Dermot O’Leary
Capacity shortage worries: Goodbody’s Dermot O’Leary

Last week, Apple said it expected to pay a $38bn (€31bn) tax bill, mostly held in Irish subsidiaries, following tax reforms that give incentives to US firms to invest there rather than in overseas locations, such as Ireland, which have been major beneficiaries of US FDI.

In its outlook, Goodbody says that while EU market access remains the number one reason for American firms' locational choice, Mr Trump's reforms are likely to result in lower FDI flows in the future.

"We do not expect the FDI stock to reduce, but the risks to the corporate tax take have increased," it said.

The report noted that volatility has been a major feature of investment trends in the Irish economy recently, mainly because of research and development, patents, inversions and aircraft leasing, once again due to the large multinational presence in Ireland.

Investment fell on a headline basis by 20pc in 2017, following a 60pc increase in 2016.

Irish Independent

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