Ireland has proven to be “resilient” against consecutive international shocks, but the government needs to work to “future-proof” the economy as growth begins to cool, the International Monetary Fund (IMF) has warned.
In its latest assessment on the state of the Irish economy, the IMF has once again raised concerns about “reliance” on foreign multinational enterprises (MNEs) like the tech giants, big pharma and financial services firms which continue to provide “strong corporate income tax receipts”.
If these international companies were wind down their operations or move elsewhere, Ireland would be very vulnerable.
“Ireland’s reliance on MNEs continues to be a key source of vulnerability. Rising geoeconomic fragmentation and elevated policy uncertainty could lead to further reorganization of supply chains and shifts in trade and capital flows that would be detrimental to Ireland’s globally integrated economy,” the IMF says.
There are also domestic issues flagged by the IMF, particularly “housing and infrastructure gaps” which “remain to be fully addressed.”
Given the size of Ireland’s tech industry, cyber security is important, the IMF said. Developments in Artificial Intelligence (AI) presents “both risks and opportunities.”
To mitigate against these vulnerabilities, the IMF recommends that the government broadens the tax base through VAT and local property taxes. This would reduce dependence on concentrated corporate tax revenues, the IMF said.
It also urged for “further reform in planning” to accelerate housing delivery.
The IMF projects that growth in modified domestic demand will slow from 5 percent in 2025 to 2.5 percent in 2026 and 2027.
Meanwhile, headline inflation is expected to spike to 3.5 percent this year, driven by volatile energy prices, before eventually returning to the 2 percent target by 2028.
Tánaiste and Minister for Finance Simon Harris TD welcomed the “economic stock-take”, but acknowledged the precarious global climate.
“I share the IMF’s assessment of external risks, notably the reversal of globalisation… and the uncertainty in relation to corporation tax receipts,” he said.
Minister for Public Expenditure Jack Chambers TD accepted that there is an urgency in tackling “bottlenecks present in infrastructure delivery” to maintain competitiveness.
The government is already leading initiatives to manage the risks of AI, including the “Digital Public Services Plan”, he said.
Ireland “cannot take its resilience for granted and should use the current window to address vulnerabilities”, the IMF urged.