DUBLIN — Before his recent resignation, outgoing Irish Prime Minister Bertie Ahern prefaced the annual St. Patrick”s Day pilgrimage to the White House by predicting “a hard year” ahead for the Irish economy.
The banking crisis and credit crunch in the United States, as well as the falling dollar, worry Irish policy-makers. Ireland has 25 percent of its trade in dollars and has bet much of its recent economic boom on a 12 percent corporate tax rate — an enormous incentive for U.S. multinationals such as Intel and Microsoft to run pan-European operations out of Ireland.
Google has the headquarters of its European and Middle East operations in Dublin. “The company is very pleased with how the Dublin operation continues to develop,” a Google spokesman said.
The spokesman, who asked not to be named in keeping with company policy, said the company “was attracted to Ireland for a number of reasons, including its highly educated work force, multilingual talent pool, where there are in excess of 140 languages spoken, and its solid economic environment.”
The unanswered question is: How will the present economic slowdown in the U.S. affect Ireland?
Dublin”s Economic and Social Research Institute (ESRI) is predicting the lowest economic growth in 20 years, at just 1.6 percent. Others are even more pessimistic, predicting zero growth.
Ireland is one of the world”s most globalized countries — ranking in the top five of the Foreign Policy/A.T. Kearney Globalization Index since 2001 — leaving it more open than most countries to upswings and downturns elsewhere in the world.
Within its own borders, Ireland faces a slump in a housing boom that also has contributed to recent years of economic growth.
More pressing in the immediate term might be the advance of the euro against the dollar, which makes exports to the United States more expensive for U.S. customers.
When the “Celtic Tiger” economy first donned its stripes in 1994, unemployment stood at 16 percent, but annual growth rates often topping 5 percent have doubled the Irish gross domestic product in just over a decade, transforming a large-scale exporter of workers into a magnet for immigrants seeking new economic opportunities.
Now, of a population just over 4 million, more than 10 percent are foreign-born and unemployment dropped to a 2002 low of less than 4 percent — a level that some economists expect to rise to about 6 percent in the coming years.
Still, Ireland is in a good position to weather an economic slump, said Martin O”Brien, economist at ESRI. He does not foresee any major outflow of U.S. or other foreign investment from Ireland.
“But I do think there will be some curtailment [of new foreign investment], partly due to a rising cost base,” he said.
An imposing gray-green building along Dublin”s docklands hosts branches of many of the world”s top banks and insurance companies, including Merrill Lynch, ABN Amro, Citibank, AIG, JP Morgan Chase and Commerzbank.
Mr. O”Brien described it as “a key part of Ireland”s economic success” and crucial to recovery from the current blip, as “service exports are growing all the time relative to the whole.”
Ireland, like much of Europe, also faces a squeeze in tourism from the U.S. as the falling dollar makes foreign travel more expensive and the economic slowdown cuts into income needed for overseas vacations.
U.S. tourists this year are unlikely to continue providing about 2.5 percent of Irish GDP as they did in 2007.
Danny McCoy, director of policy at the Irish Business and Employers Confederation, said the weak dollar and strong euro has its upside.
“With the euro now at its strongest against the dollar, the European market is up, as is profitability. American multinationals thus make money by repatriating profits made in euro back to dollars at home,” Mr. McCoy said.
“Ireland’s economy has been rebalancing this year. For the past two years, construction has been the driver of growth and job creation; but now we can get back to exports as the main spark. There will be winners and losers elsewhere, and we can use this turmoil to get our export edge back.”Show