High-tech, life sciences, financial services, and agribusiness (including agrifood) services make up the backbone of the Irish economy, which is a highly developed knowledge economy.
Foreign direct investment (FDI) flows of high value put Ireland first, and the country’s open economy fifth, on the Index of Economic Freedom. IMF and World Bank rankings of countries by GDP per capita place Ireland at #4 overall (out of 186 countries) and #4 (out of 187 countries).
Ireland Economy In Europe 2023 [Facts & History]
The Irish economy had annual growth from 1984 to 2007, but the global financial crisis that began in 2008 exacerbated domestic issues brought on by the bursting of the Irish real estate bubble. Two recessions hit Ireland: the first lasted from the second to the third quarter of 2007 and the second lasted from the first to the fourth quarter of 2009.
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Irish real GDP increased by 2.2% in 2011 and by 0.2% in 2012, following a year of economic stagnation in 2010. The expansion was propelled by a rise in exports. A new Irish recession began in the third quarter of 2012 due to the European sovereign-debt crisis, and it is still continuing on as of the second quarter of 2013.
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The European Commission’s economic estimate for Ireland in the middle of 2013-expected growth rates of 1.1% in 2013 and 2.2% in 2014.
Some of 2015’s exaggerated GDP growth of 26.3% (GNP growth of 18.7%) was officially attributed to tax inversion tactics by multinational corporations switching domiciles.
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American economist Paul Krugman labeled this increase in GDP “leprechaun economics,” however it was later proven to be driven by Apple Inc.’s restructuring of its Irish subsidiary in January 2015.
After realizing that the tax methods of some multinational corporations were distorting Ireland’s economic statistics (including GNI, GNP, and GDP), the Central Bank of Ireland proposed an alternative metric (modified GNI or GNI*) to better reflect the true health of the economy going forward.
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Ireland Multinational Investments
Multinational corporations controlled by foreign investors continue to play a substantial role in Ireland’s economy. These enterprises account for 14 of the top 20 Irish firms (by turnover), employ 23% of the private sector workforce, and provide 80% of the corporation tax collected. The Irish economy was expected to slow down sometime in the middle of 2019, especially in the event of a chaotic Brexit.
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A sizeable portion of Ireland’s GDP is generated by multinational corporations with foreign ownership. Some of these multinational corporations use “multinational tax methods” that skew the Gross National Income, Gross National Product, and Gross Domestic Product figures for Ireland.
When comparing gross public debt to gross domestic product, Ireland ranks around average (78.8% in 2016) but ranks second (behind Japan) in terms of per capita gross public debt (at $62,686 in 2016), according to data compiled by the Organisation for Economic Co-operation and Development (OECD).
As a result of this discrepancy, in 2017 the Central Bank of Ireland introduced Irish modified GNI (or GNI*) as a means of evaluating the Irish economy (Irish GDP in 2016 was 143% of Irish GNI in 2016; the OECD’s measure of Irish gross public debt to GNI* was 116.5%).
The Irish GNI* per capita is comparable to that of Germany. The OECD found that in 2017, foreign-owned companies saw average productivity growth of 10.9%, while domestic companies saw a growth of 2.5%.
The optimism of Irish consumers (who borrowed to 190% of disposable income, OECD highest) and global capital markets (which enabled Irish banks to lend over 180% of their deposit base, OECD highest) was bolstered by the distortion of Irish economic data by US multinational tax schemes, a key contributor to the buildup of leverage in the Celtic Tiger.
Global capital markets, who overlooked Ireland’s private sector lending, and OECD/IMF warnings, when Irish GDP was soaring during the Celtic Tiger, took fright in the financial crisis.
Their departure triggered a severe correction in Irish property values, which in turn triggered a banking crisis in Ireland.
Apple’s reorganization of their double Irish subsidiary, ASI, in January 2015 was revealed to be a major driver of Ireland’s spectacular GDP growth in 2015 (from 1% in 2013 to 8% in 2014 to 25% in 2015).
Despite this, a subsequent report by the EU Commission on Ireland’s national accounts revealed that multinational net royalty payments accounted for 23% of Ireland’s GDP even before this. This suggests that the “real” GDP in Ireland was actually inflated by 70%. (before the Apple growth).
As a result, the Central Bank of Ireland proposed a new alternative metric, modified gross national income (or GNI*), to more accurately reflect the “real” Irish economy.
The enactment of the Tax Cuts and Jobs Act of 2017 presents a problem for the Irish economy because of the dominance of American multinational corporations (80% of Irish multinational employment and 14 of the 20 largest Irish enterprises).
In several places, the US TCJA specifically goes after tax havens used by Irish multinationals (especially the move to a modern “territorial tax” system, the introduction of a lower FDII tax on intellectual property, and the counter-Irish GILTI tax regime).
The European Union’s proposed Digital Sales Tax (and expressed intention for a Common Consolidated Corporate Tax Base) is also perceived as an effort to limit the use of Irish multinational tax shelters by American technology firms.
In order to bring down the inflated value of the Irish credit market, the government had to shift a lot of debt from the private sector (with the greatest leverage in the OECD) to the public sector (which was almost unleveraged before the crisis) by means of bank bailouts and deficit spending.
As a result of this debt swap, Ireland in 2017 had one of the highest levels of public sector indebtedness and private sector indebtedness in the EU-28/OECD.