Belfast Telegraph

View from Dublin: Forecasts are dangerous but here's mine anyway

By Richard Curran

Perhaps it is sage advice to 'never make predictions - especially about the future', but sometimes we can't help ourselves.

As we begin 2018, there is a lot to be positive about and my overall prediction is that the economy and business should stay pretty much on track over this year.

Years that have even numbers always sound more positive to me, but when it comes to eco­nomic performance it isn't always the case. In the last 20 years there have been 10 times when an even year followed an odd year. In seven of those 10 occasions, economic growth was lower in the even year than it had been in the previous odd year. Perhaps we are due a higher growth year in 2018.

Here are a few things to watch out for in the next 12 months:

Brexit:

The Brexit situation is looking a lot better than it did this time last year when it comes to the possibility of a soft Brexit, with a transition period and commitments on the smooth operation of the border. Brexit has always been about British domestic politics rather than economics.

As things stand Theresa May looks likely to remain in of­fice longer than anybody predicted simply because none of her Tory rivals feels assured of carrying an elec­tion. Having backed down on several key Brexit policy goals, the British Prime Minister should be a sitting duck, at least for Labour Party leader Jeremy Corbyn to have a right go. Yet he has failed to land a significant blow in recent weeks, which highlights his own ambivalence about Brexit and the EU.

Expect more of the same but a gradual steady disintegration of the hard Brexiteers at the ne­gotiations with the EU.

The big danger for Irish businesses in 2018 regarding Brexit is the damage it is now doing to the British economy. Consumer confidence is at a four-year low as real incomes fall against a rising cost of living. This will start to bite even harder next year, especially for Irish exporters. But it may help steer the UK towards a softer Brexit in the talks.

Trump, Tax and Impeachment:

Each month that passes appears to take President Donald Trump that little bit closer to impeachment.

If it doesn't happen for the Russia scandal then don't rule out a backlash over possible conflicts of interest. The tax reform package passed on Constitution Hill in Washington before Christmas will add a perk to US consumer spending. What it will do longer term to the US exchequer deficit has not been fully analysed.

On the corporation tax front, the reforms shift the ground rules somewhat around the attractiveness of Ireland as a destination for US foreign direct investment.

US corporations with hundreds of billions of dollars held overseas are likely to repatriate a large chunk of that to avail of a special 15.5% tax rate. They are likely to use it for dividends and share buy-backs rather than enormous capital investment in their businesses at home. This should be a boost in the short term for the US economy which may simply accelerate interest rate hikes in time.

Don't expect an exo­dus of US FDI out of Ireland any time soon, but in the longer term it may influence the number of new investments.

AIB share sale:

It is tempting for the Irish government to sell down more of its shares in AIB but it is likely to be politically sensitive.

If the share price holds up at current values, there is a case to be made for taking more money off the table. However, the controversy over what to do with it, other than pay down national debt, could make it more political trouble than it is worth. Paschal Donohoe will make the call, with one eye over his political shoulder.

Ryanair:

An extraordinary year for Ryanair should be followed by something even more dramatic - operating as a unionised company.

This will pose enormous challenges for the management team and not least chief executive Michael O'Leary.

Even if he wanted to leave the company (because it doesn't relish dealing with unions) going now would impact his legacy. His contract is up in September 2019.

Lead-in times are lengthy for that kind of job.

He might have something to announce this time next year.

Belfast Telegraph

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