IRELAND’S ECONOMY IS “highly vulnerable” to global shocks due to the country’s “significant reliance” on multinational corporations, a new report from the ESRI has said.

This echoes previous concerns shared by the Irish Fiscal Advisory Council, National Competitiveness Council and several economists.

The ESRI noted in its new report that despite difficulties such as Brexit, Ireland’s economy has grown strongly – however, due to Ireland’s reliance on multinationals, the think tank predicts large reductions in national income if shocks were to occur.

It also found that Ireland’s economy could be boosted if the productivity gap between Irish-owned and foreign-owned firms narrowed.

The ESRI said that if the economy continues along its current trajectory, gross national income (GNI) – which doesn’t consider income from multinationals – is projected to grow by 2.3% per annum out to 2030 and by 2.1% out to 2035. 

It predicted that if the Irish to multinational company productivity gap decreased, the GNI could increase by over 1% while household spending could rise by 2.4% by 2023.

There is a huge productivity gap between Irish-owned companies and multinationals in Ireland. ESRI ESRI

The ESRI also carried out forecasts on how different scenarios and global shocks would negatively impact Ireland, which author Dr Aykut Mert Yakut said show a “pessimistic outlook”.

If there was a decline in multinationals, the think tank predicted employment in pharmaceuticals and information and communication sectors would reduce by 10%.

This could lower the GNI by 1.5%, and reduce household spending by 1.9% by 2030.

A decrease in competitiveness is predicted to have the worst impact on household spending, reducing it by over 8% by 2030.

But a global slowdown could also have significant effects, potentially causing a 5% drop in Irish export demand.

The report author said: “The scenarios with negative external shocks  portray a pessimistic outlook regarding potential implications stemming from the vulnerabilities of the Irish economy due to its reliance on multinational corporations.”

“On the other hand, the results also indicate that carefully tailored strategies aimed at rebalancing the composition of economic activity between foreign- and Irish-owned firms through productivity improvements would yield substantial benefits.”

Professor Martina Lawless, Director of the ESRI, said the forecasts indicate that policy interventions are needed now to improve the productive capacity of the economy.

“The baseline projection of our Economic Outlook is one of sustained but moderating growth rates over the next decade. There are a number of risks to this path and also a range of longer-term headwinds that are beyond the time horizon of the projections, such as an ageing population and climate change costs,” she said.

“These suggest that policy interventions now to improve the productive capacity of the economy — investments in education, public infrastructure, research and development — are critical to mitigate the risks and place the country in a strong position to take advantage of opportunities.”