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Ireland's firms brace for economic hit with quiet confidence
Hundreds of companies, 200,000 jobs, billions of euro in corporation tax revenue. Add it all up and Ireland's reliance on US investment for its economic success is starkly clear.
While it is one of the most vulnerable countries to Donald Trump's efforts to rewrite global trade, there's a quiet confidence in its financial sector and economy.
From the finance minister to bankers, the view is that the small, open economy, with its low unemployment and a healthy budget surplus starts from a strong point against any potential shocks. They believe the country can leverage its reputation for stability, clear regulation and business friendliness to ensure Ireland stays an attractive location for money.
It's a model that has long worked for the country, but it will face tests in the coming years. Acknowledging that, the central bank, Department of Finance, and major banks have cut their economic forecasts in recent months.
'We focus on what we can control,' finance minister Paschal Donohoe said this week.
From an Irish point of view, we can't influence what's going to happen with global trade, but we can influence how competitive our economy is.
Based on a domestic measure, growth is set to slow to about 2% in 2025, from 2.7% last year.
Much of the concern for Ireland centers on what tariffs mean for its tech and pharmaceutical sectors, which is dominated by firms like Apple, Alphabet, Eli Lilly, and Pfizer.
Corporation tax receipts, heavily concentrated in a small number of firms, totalled €39bn in 2024, accounting for 36% of the total tax take. That figure encapsulates Ireland's prowess at luring foreign capital, and its dependence on American money.
In spite of the risks to investment and jobs, the country's financial elite continues to see expansion. That message was on display this week at the Future of Finance event hosted by Bloomberg in Dublin, where Donohoe spoke.
The financial services industry has grown substantially over the past decade, in part because of the stability Ireland has developed since the 2008 financial crash.
Measured by assets, the sector reached €8tn in size in 2023. Total assets under management for Irish-resident investment and money market funds is at €5.5tn, more than tripling over the last decade, according to the central bank.
Along with competitiveness, Ireland's other sales pitch is consistent and clear regulation. The idea is guardrails and stability, but not unwanted deterrents. Mary-Elizabeth McMunn, deputy governor at Ireland's central bank, calls it a 'pragmatic' approach.
'We want financial institutions to be around in good times and in bad,' Ms McMunn said.
So in some ways I would say our interests are completely aligned because if I'm a CEO of an institution, I want to be around for the longer term. I don't want a shock to hit that really adversely interrupts my business.
While the central bank has recently won plaudits for its industry engagement, it drew criticism after the Brexit vote when it frustrated banks looking to set up trading arms in Dublin. Most ultimately opted for Frankfurt and Paris.
There are also lingering frustrations about high taxes on some activities and what is effectively a cap on bank bonuses.
AIB share sale
Emblematic of Ireland's financial turnaround, this month the Government disposed of the remainder of its shareholding in AIB. After the bailouts of the global financial crisis, that means the country's two biggest banks are now fully out of State ownership. A third, PTSB, will follow at some point.
The bailouts cost billions of euros — AIB alone came to about €20bn — but the Government said it broke even based on current market prices.
AIB's journey reflects the broader changes that have taken place.
'The industry is fundamentally different than it was,' chief executive Colin Hunt said. When he took over, six and a half years ago, 'nonperforming exposures were 10% of gross loans. They are now less than 3%, and that is reflected right across the industry,' he said.
While the Irish banking industry is now more streamlined, Mr Hunt said AIB could take part in wider European consolidation in the future, though he does not see anything imminent.
'You want to ensure that your institution is in a relatively strong position to decide how it plays in that consolidation wave,' he said.
For Ireland, the general optimism will undoubtedly be challenged. There are less than two weeks to go before Trump's July 9 deadline for a trade deal, after which tariffs on almost all EU exports to the US will jump to 50%.
'There are challenges,' Mr Donohoe said. 'But we are well-placed to deal with them. And we will.'
Bloomberg
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