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Brexit, tariffs and The Donald - brace yourself as our economy faces interesting times in 2017

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'From Brexit to Donald Trump, 2016 threw us some curve balls.' Photo: Reuters

'From Brexit to Donald Trump, 2016 threw us some curve balls.' Photo: Reuters

REUTERS

'From Brexit to Donald Trump, 2016 threw us some curve balls.' Photo: Reuters

From Brexit to Donald Trump, 2016 threw us some curve balls which could put Ireland's economic model to the test.

The commonly used expression "may you live in interesting times" can be dated back to the 1930s.

Decades later, in 2002, the US secretary of defence Donald Rumsfeld talked about things we know we do not know, coining the phrase "known unknowns" in the process.

Fast forward to 2016 and these two sayings not only remain relevant, but in many ways epitomise the events of the past year.

Concerns about the Chinese economy and global growth, a collapse in oil prices, the UK's vote to leave the EU, sterling volatility, the result of the US presidential election, increased Euro-scepticism, ECB easing and Fed hiking, all made for an interesting year.

These issues have resonated globally, but are arguably of particular importance for Ireland because of what some of them might mean for our economic growth model.

Trade, FDI and EU membership have been the core planks of Irish economic policy for some time now and, by and large, they have served us well. There are signs that the ground is shifting, though.

Brexit and the protectionist nature of the US president-elect's policies raise the spectre of a world with greater restrictions on trade. The nation state appears to be on the ascendency again and, if this continues, it could spell the end for the 'golden era' of globalisation.

Changes are afoot on the international tax front, too. The UK government has lowered its rate of corporation tax and is set to do so again, with cuts also being touted by the Trump administration. Added to this, the European Commission has put its Common Consolidated Corporate Tax Base (CCCTB) proposal - which involves harmonising the base on which corporate taxes are levied across the EU and then agreeing a mechanism for allocating the base across countries - back on the EU agenda.

At the same time, the already unsettled political situation in Europe is likely to become more unsettled. Reform fatigue has long set in, populism is on the rise and the outcome of the upcoming 2017 elections - including in France, Germany and the Netherlands - could be telling for the wider European project.

For an open, export-orientated economy such as ours, a return to the days of high tariffs, customs barriers and quotas is not in our interest.

For a country that relies heavily on FDI, as we do, greater competition and a potential loss of control over corporate tax policy - a key lever for attracting multinationals - is not a space we want to be in. And for a small island that has prospered through its commitment to Europe, a weakening of the EU goes in the wrong direction.

All of this puts us firmly in the realm of 'known unknowns'. We know that the core planks of our economic policy face threats and we know that we don't know precisely how these will play out.

It may be that these risks do not materialise, either in full or in part, for any number of reasons. Campaign rhetoric and policy implementation are two different things. Unanimity among member states will be required for the CCCTB proposal to go ahead. And so on.

But they have the potential to. This is known and should give us pause for thought. If we were to face a very different environment to what we have today, how would our growth model fare?

As we head into 2017, there is an onus on the economics profession to really test the parameters of the existing model. There will be a lot of caveats, not least because we do not know exactly what the world will look like and so assumptions will be needed. But what we should get out of this is a broad sense of direction and scale. This can then serve as supporting material for policymakers.

Last year was one of considerable change. Some of the decisions taken will impact in the near term, while others will evolve one way or the other over the medium term. Navigating our way through these will require an open and informed debate. We will also need to draw on the many resources we have to hand, be innovative in our thinking, and flexible in our attitude.

Positioning ourselves well now will mean non-surprises at a later date and will help chart a course for the policy response.

Doing so is important because undoubtedly there are genuine surprises to come - things that we do not know that we do not know, or, borrowing another phrase of Donald Rumsfeld's, "unknown unknowns".

Interesting times indeed.

Dr Loretta O'Sullivan is group chief economist at Bank of Ireland

Irish Independent