Economic Analysis
Ireland

Ireland

Population 5.0 million
GDP per capita 85,206 US$
A4
Country risk assessment
A1
Business Climate
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 5.6 5.6 13.4 6.1
Inflation (yearly average, %) 0.9 -0.5 2.4 7.7
Budget balance (% GDP) 0.5 -5.1 -1.9 0.3
Current account balance (% GDP) -19.9 -6.8 14.2 12.0
Public debt (% GDP) 57.2 58.4 56.0 48.9

(e): Estimate (f): Forecast

STRENGTHS

  • Flexible labour and goods markets
  • Favourable business environment, attractive taxation
  • Presence of multinational companies, particularly from the United States, which account for 22% of employment and 63% of value added in the non-financial business sector
  • Presence through multinationals in sectors with high value added, including pharmaceuticals, IT and medical equipment

WEAKNESSES

  • Dependent on the economic situation and tax regimes of the United States and Europe, particularly the United Kingdom
  • Vulnerable to changes in the strategies of foreign companies, particularly following the signing of the global tax agreement
  • Exposed to tensions between the UK and the EU
  • Banking sector still vulnerable to shocks

Risk assessment 

Domestic activity slows down due to the consequences of the war in Ukraine

After being one of the few countries in which activity did not decline in 2020, the economy recorded exceptional growth in 2021, thanks to the rebound of domestic demand following the lifting of restrictions and, above all, to the dynamism of exports by multinationals in the pharmaceutical sector (36% of goods exports in 2021, 55% including chemical products) and IT services (60% of services exports). At the beginning of 2022, the surge in the prices of many commodities (oil, gas, metals, cereals) due to the war in Ukraine led to a surge in inflation, which reached 9.6% in June 2022. Driven mainly by energy prices (heating oil +115%, gas +57%, electricity +41%), it will remain very high in the second half of the year, due to the spread of inflationary pressures to all goods and services. Despite a still high savings rate (21% of gross disposable income at the end of March 2022, compared with 10% before the crisis), households’ consumption - whose confidence was at its lowest since 2011 in July - will slow down significantly in this context of loss of purchasing power and high uncertainty, encouraging precautionary savings. Businesses will not be left out, as they will face soaring production costs, in addition to supply difficulties - expressed by 50% of businesses in industry in the third quarter of 2022. Concomitantly, despite negligible trade with Russia - which accounted for only 0.3% of exports and 0.6% of imports in 2021, albeit for a quarter of imported fertilisers - the external situation will also be deteriorated, with the conflict considerably affecting activity in Europe in the second half of the year and, consequently, external demand. While the domestic economy is likely to suffer a setback, multinationals may prove far more resilient and allow the Irish economy to post (somewhat artificially) strong growth, as in the first quarter of 2022 when GDP grew by 6.3% and GNP (excluding multinationals) fell by 3.6% compared with the fourth quarter of 2021.

 
While the signing of the trade agreement between the UK (13% of Irish exports of goods and services in 2019) and the EU in December 2020 was excellent news, the recurring tensions and threats that have since plagued the relationship between the two parties, particularly over the Northern Ireland Protocol, are generating uncertainty. This is all the more true given that although the country does not import Russian gas, it is increasingly dependent on British supplies (71% of gas consumption in 2021), due to the gradual depletion of its Corrib field.

 

International tax agreement: no effect in 2022, but very uncertain thereafter

After a deficit due to the pandemic, the public accounts are expected to return to a small surplus in 2022, mainly due to the strong financial performance of multinational companies. The surge in corporate tax revenues will be such that it should compensate for the multitude of measures implemented to deal with the consequences of the war in Ukraine: lower VAT on gas and electricity, discounted fuel prices, reduced public transport fares and allowances for less well-off households. Public debt, which is relatively modest compared to the Eurozone average, should thus continue to fall. Having signed the International Tax Agreement in October 2021, the country will soon (probably in 2023) increase the corporate tax rate from 12.5% to 15% for companies with a turnover of at least EUR 750 million. The effect of this agreement on the attractiveness of the Irish economy is as uncertain as it is crucial, given that tax revenues depend so much on the activity of multinationals: the share of corporation tax has risen from 7% in 2014 to 25% in 2021. The vulnerability of public finances is all the greater given that more than half of corporate tax revenues are attributable to just ten multinationals.

 
Beyond their effect on public finances, the investment decisions of these firms also have a considerable influence on the external accounts, which would suffer greatly if multinationals left the country. Indeed, the current account is extraordinarily volatile. While the balance of goods is structurally very positive (39% of GDP in 2021), the balance of services fluctuates strongly (from a deficit of 19% of GDP in 2020 to a balance in 2021), depending on imports of R&D services (transfers of intellectual property assets from foreign subsidiaries of multinationals to their Irish subsidiaries). At the same time, dividend repatriation by multinationals leads to a structural deficit in the income balance (25% of GDP). Excluding multinational-related effects, the current account has been in surplus since 2015.

 

Mid-term, irresistible momentum for Sinn Féin, the main opposition party

The February 2020 legislative elections had led, after four months of negotiations, to a coalition between the two rival centrist parties, which have taken turns in power for a century - Fianna Fáil (22%, 37 seats out of 160 in the Dáil) and Fine Gael (21%, 35 seats), and the Greens (7%, 12 seats). Thus, Micheál Martin, leader of Fianna Fáil, succeeded Leo Varadkar (Fine Gael) as Taoiseach (Prime Minister). Then, according to the rotating leadership agreement, he should return to power in December 2022, for the second part of the mandate. However, these elections were marked by the historic breakthrough of the nationalist party Sinn Féin - with a left-wing agenda, but above all in favour of reunification with Northern Ireland - which came first with 24.5% of the vote. In July 2022, when the polls confirmed its irresistible progress, with 36% of the voting intentions, i.e. almost 20 points ahead of the FF and the FG, Sinn Féin took advantage of the loss of the government's majority in the Dáil - due to the departure and temporary suspension of some rebel MPs - to launch a motion of censure. As some of the independent MPs voted in favour of the continuity of the government, the motion of no confidence was largely rejected (85 votes against, 66 for). While the coalition seems to be in a position to complete its mandate - which will end in March 2025 at the latest - the momentum is undoubtedly on the side of Sinn Féin at the halfway point. However, because of its links with the IRA, a nationalist paramilitary organisation that abandoned armed struggle in 2005, it is isolated in the political landscape and the other main parties have always (so far) ruled out joining it in a coalition, making it difficult for it to take power.

 

Last updated: August 2022

Payment

Cheques are still used for both domestic and international commercial transactions, however for international transactions, the use of bills of exchange is preferred, together with letters of credit. Bank transfers are common, with SWIFT transfers being utilised regularly. Direct Debits and standing orders are also becoming more recognised as an effective payment method, and are particularly useful for domestic transactions. Assignment of invoice is accepted both pre- and post-supply of goods and/or services.

Debt collection

Where there is no specific interest clause, the rate applicable to commercial contracts concluded after August 7, 2002 (Regulation number 388 of 2002) is the benchmark rate (the European Central Bank’s refinancing rate, in force before January 1 or July 1 of the relevant year) marked up by seven percentage points and applied to the contracts via a percentage calculated per day past due date. For claims exceeding €1,270, debtors may be threatened with a “statutory demand” for the winding-up (closure) of their business if they fail to make payment or come to acceptable terms within three weeks after they receive a statutory demand for payment (a “21-day notice”).

 

Amicable phase

The debt collection process usually begins with the debtor being sent a demand for payment, followed by a series of further written correspondence, telephone calls, personal visits, and debtor meetings. If the two parties are unable to reach an amicable settlement, the creditor may begin legal proceedings.

 

Legal proceedings

If a defendant fails to respond within the allotted time to a court summons (either a plenary or summary summons before the High Court, a civil bill before the Circuit Court, or a civil summons before the District Court), the creditor may obtain a judgement by default based on the submission of an affidavit of debt without a court hearing. An affidavit of debt is a sworn statement that substantiates the outstanding amount and cause of the claim. It bears a signature attested by a notary or an Irish consular office. The claim amount at stake will determine the competent court: the District Court, then the Circuit Court, and, for claims exceeding €38,092.14, the High Court in Dublin, which has unlimited jurisdiction to hear civil and criminal cases and to assess, in the first instance, the constitutionality of laws enacted by Parliament (Oireachtais).

 

Fast-track procedure 

In any of the three courts, if the debt is certain and undisputed, it is alternatively possible to request a fast-track summary judgment from the competent court.

 

District Court: amounts up to €6,348

For contested debts, a civil summons is served on the debtor, with the originating court proceedings setting out the claim and amount alleged owed. The debtor then files a Notice of Intention to Defend, indicating that he intends to contest the case, at which point the court fixes a hearing date. The case is heard before a judge, who decides whether to issue an order for judgment (a Decree).

 

Circuit Court: amounts from €6,349 to €38,092

In this case, a civil bill is served on the debtor, who, in turn, will enter an Appearance (a formal document indicating that the debtor intends to answer the claim). A notice for particulars is then also filed by the debtor, in which he seeks further information about the claim to which the creditor sends replies. The debtor must deliver a defence within a prescribed period. The creditor then serves the defendant with a formal notice advising of hearing date. Each side presents its case and the judge makes a decision.

 

High Court: amounts over €38,093

In front of the High Court, a summary summons is served on the debtor, who then files an Appearance. The creditor makes an application to the Master of the High Court for judgment by way of motion and grounded by sworn affidavit. The debtor can reply to the claim by sworn affidavit. If the Master is satisfied that the debt is due and owing, liberty to enter final judgment is granted. However, if the Master is satisfied that the debtor has a genuine dispute, the case is sent for a plenary hearing. During the plenary hearing, the merits of the case are heard either as oral evidence or affidavit. A High Court hears the case and makes a determination.

The commercial court – a special division of the High Court, created in 2004 – is competent to hear commercial disputes exceeding €1 million, included in a commercial list or cases concerning intellectual property, and is able to provide a suitable and rapid examination of the cases submitted. At the discretion of the commercial judge, proceedings may be adjourned for up to 28 days to enable the parties to refer to alternative dispute resolution practices, such as conciliation or mediation.

Normally, obtaining a decision may take a year. However, this timeframe may be doubled if compulsory enforcement is required. Appeal claims brought before the Supreme Court may take an additional three years.

Enforcement of a legal decision

A judgment is enforceable as soon as it becomes final. If the debtor fails to satisfy the judgment, the creditor can request the competent court to order execution by way of attachment and sale of the debtor’s assets by the Sheriff. There is also the possibility to obtain payment of a debt through a third party owing money to the debtor (garnishee order).

For foreign awards, enforcement depends on whether the decision is issued in an EU member state or a country outside the EU. For the former, Ireland has adopted enforcement mechanisms; such as the EU Payment Order, or the European Enforcement Order when the claim is undisputed.

Insolvency proceedings

Out-of-court proceedings

Informal negotiations may take place, and any agreement must be unanimously adopted by all creditors.

 

Examinership

Examinership is an Irish legal process whereby court protection is obtained to assist the survival of a company; The company may then restructure with the High Court’s approval. It provides a maximum 100 day period in which a court appointed official (the examiner) seeks to take control of the company and manage it so that the company may continue to trade. The procedure may be initiated by the company, its directors, or one of its creditors. Once the examiner has been appointed, no proceedings may be commenced against the company. Its functions are to examine the affairs of the company and to formulate proposals for its survival. The examiner must formulate proposals for a compromise or scheme of arrangement to facilitate the survival of the relevant body as a going concern. They can be accepted by the creditors but they must be validated by the court.

 

Receivership

The procedure arises in the context of secured creditors and provides a framework in which they may act so as to enforce their security interest. A receiver is appointed to a company by either a debenture holder or the court to take control of the assets of a company, with a view to ensure the repayment of the debt owed to the debenture holder, either through receiving income or realising the value of the charged asset.

 

Liquidation

The terminal process by which a company is wound up and dissolved, this process is conducted by a liquidator who takes possession of assets and distributes the proceeds from their sale in accordance with the priority of repayment. The liquidator is also required to investigate the conduct of the directors of the company and prepare a report for the Office of the Director of Corporate Enforcement (ODCE). Dependent of its view, the liquidator may also be required to bring restriction proceedings against one or more of the directors. The procedure can be started by a competent court (court liquidation), the creditors (creditors’ voluntary liquidation) or the debtors (members’ voluntary liquidation).

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