Finance | Foreign Direct Investment and competitiveness of the Irish economy
To ask the Minister for Finance the extent to which Ireland remains an attractive option for foreign direct investment; and if he will make a statement on the matter.
To ask the Minister for Finance the extent to which Ireland’s economy can remain competitive notwithstanding the many challenges; and if he will make a statement on the matter.
Ireland’s industrial policy has been highly successful in attracting foreign direct investment (FDI), contributing to sustained economic activity over the past number of decades. The strong regulatory and legal environment as well as stable and pro-enterprise policy, combined with a talented workforce, is reflected in the level of FDI that Ireland has attracted and retained. The IDA recently estimated that the multinational sector directly supports approximately 275,000 jobs in Ireland, with further positive spillovers for jobs in the domestic sector.
Ireland remained a competitive economy throughout the pandemic with export growth in the ICT and pharmaceutical sectors contributing to economic growth despite pandemic-related restrictions; an outcome that was particularly unusual in an international context. However, while the domestic economy rebounded quickly following the lifting of pandemic restrictions, the strength of the recovery has been tempered by Russia’s invasion of Ukraine and its weaponisation of gas supplies. This supply-side shock has contributed to record levels of inflation in the euro area of 10.7 per cent in October, with Irish inflation also elevated at 9.6 per cent. Lower demand and rapid interest rate hikes from central banks have negative implications for the economic prospects of economies the world over.
Thus, no economy is immune from the global crisis, not least a small open economy like Ireland. Despite the darkening global situation, however, Ireland’s modified (and headline) current account is projected to remain in surplus over the next few years. Similarly, despite external headwinds my Department projects that Irish exports will continue to grow, albeit at a lower annual rate than was seen in the last couple of years, demonstrating continued competitiveness in the Irish economy.
Notwithstanding our positive position, we must not become complacent. There is a risk that a wage-price spiral emerges as a result of persistently high inflation, which would damage our cost competitiveness and hamper the economy’s ability to compete in the global market place. My Department will continue to monitor risks to competitiveness closely, and respond as needed to protect Ireland’s attractiveness as a location for FDI. Indeed, the economic fall-out of a large sector-specific shock was flagged as a potential risk to the forecasts published by my Department alongside Budget 2023 and recent events in the ICT sector reflect the importance of examining such scenarios.
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