Why Ireland’s economy is red hot

This is an audio transcript of the FT News Briefing podcast episode: Why Ireland’s economy is red hot

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, August 9th, and this is your FT News Briefing.

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China’s continuing to flex its military might. Investors wonder if the US tech stock rally will last. And Europe’s economies are looking really grim, but there is a tiny exception. I’m Marc Filippino and here’s the news you need to start your day.

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The US yesterday announced an additional $1bn in military aid to Ukraine. It’s the largest military package since the start of Russia’s invasion. In all, Joe Biden’s administration has sent nearly $10bn in security aid to Ukraine. And this latest round comes as Ukraine is preparing a fresh offensive in the southern part of the country. It wants to take back the city of Kherson and stop Russia from using Dnipro river as a natural barrier. The US assistance will include, among other things, ammunition and armoured medical vehicles.

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China continued its military drills around Taiwan on Monday. They’re seen as a response to the visit by US House Speaker Nancy Pelosi to Taiwan last week. She’s the highest-ranking US official to visit Taipei in decades. Our correspondent in Taiwan, Kathrin Hille, reports that China’s military also crossed an unofficial dividing line in the Taiwan Straits.

Kathrin Hille
Both sides have mostly respected that, so just stayed on their side of that unofficial line. China started crossing it at periods of high tension more frequently again about two years ago. But now they have commented on state media that they think they’ve succeeded in completely obliterating that median line. And they’ve also started talking about how these exercises are being conducted in their own waters and therefore legitimate. So it looks like they might actually have used this opportunity to establish a more frequent military presence, much closer to Taiwan.

Marc Filippino
And what would that mean, Kathrin? What could crossing this line lead to?

Kathrin Hille
Well, it matters because the People’s Liberation Army could, if they have the capacity, start operating much more often, maybe even regularly on Taiwan’s side of the Taiwan Strait. It just means that you could, without much warning or without any warning, really, they could just suddenly be over our heads here. So this actually, as a next step leads to the big question whether the United States will take any steps, will do anything.

Marc Filippino
And another issue, Kathrin, is actually between Taipei and its main defender, Washington. You’ve reported that the two sides disagree on military strategy towards mainland China. Can you talk a little bit more about this?

Kathrin Hille
The US has been pressuring Taiwan to forget about the big prestigious platforms like new warships and more new fighters, but rather focus on the very down-to-earth capabilities that would allow something like a guerrilla force to fight a bloody war, preventing the PLA from taking total control. So basically some of the things that have proven quite successful in Ukraine, in defending against the Russian assault, but the Taiwanese military still thinks that just focusing on these things like highly mobile, cheap, small handheld missiles and coastal defence missiles and so on, is not enough. And they think that the last week kind of proves their point because if they hadn’t had their own fighters to scramble against the Chinese, maybe the Chinese Air Force, of course, would have come much closer, much faster. So there is this big disagreement there that basically prevents Taiwan from rapidly strengthening their defences.

Marc Filippino
That’s the FT’s greater China correspondent Kathrin Hille in Taipei.

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Financial markets saw a huge sell-off in tech stocks in the first half of this year. The Nasdaq even slid into a bear market, but things have turned around. The Nasdaq has rallied nearly 15 per cent since last month, partly because second-quarter earnings have been better than expected. But investors are divided on whether the tech rally will last. Here’s the FT’s asset management reporter Chris Flood on why some people think tech stocks will keep going up.

Chris Flood
So yes, I mean, the reasons for optimism are because there is a very strong secular growth story behind technology investments. I mean, new technologies like cloud computing are becoming developments of real substance. The greater popularisation of electric vehicles. The widespread expectation that companies are gonna have to continue to spend on technology in order to ensure that they can remain competitive, of course. Another reason for optimism is the fact that some investors think that the improvement in valuations is going to spur some more M&A activity. And perhaps we might even see strategic buyers, mature technology companies, stepping in to pursue deals in order to bolster their own businesses.

Marc Filippino
So Chris, what’s the argument against the rally? Why do other investors think the rally will end and that we’ll see a sell-off like we saw earlier in the year?

Chris Flood
So I guess there’s two sets of concerns. One would be that we aren’t finished with downward revisions for earnings. So although valuations have fallen, it may be the case that there could be further weakness in earnings in the second half of this year and going into 2023. A second reason for caution is because some strategists are wondering if this is what gets described as a bear market bounce, as if it’s just a temporary respite. Seeing these bear market bounces was a common feature of the last time that the Nasdaq was in a prolonged bear market between 2000 and 2003. So the jump that we’ve seen since July has got some strategists thinking that it’s not going to be the start of a sustained upturn.

Marc Filippino
Chris Flood is the FT’s asset management reporter.

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Europe’s economic outlook is pretty grim. Growth is close to zero and a recession is looming. But then there’s Ireland. The Emerald Isle’s economy is red hot. Last quarter, it grew by more than 6 per cent and the government is enjoying a massive windfall in corporate tax revenues. Here’s the FT’s Ireland correspondent Jude Webber.

Jude Webber
So multinational companies and those are tech giants like Apple, Amazon, Facebook, Meta, they’ve piled into Ireland because Ireland for years has had a corporate tax rate of just 12 and a half per cent. Those companies and they include pharmaceuticals companies as well, like Pfizer, those companies have been doing really well in the pandemic. And when their profits go up, obviously their corporate tax payments to the Irish exchequer go up. And so Ireland’s just been raking in all this money from multinational companies.

Marc Filippino
Now Jude, as you report, employment and foreign investment are also at record highs. Given all this, are people in Ireland feeling wealthier?

Jude Webber
Well, Ireland’s pretty expensive. So it means higher prices that we’re seeing everywhere, higher fuel prices, higher food prices. So that’s very painful for a lot of people. But Ireland has a particular other problem, which is housing. And this is not caused by the pandemic and it’s not caused by the war in Ukraine. It’s caused by a shortage of housing stock. So basically, everyone’s struggling and people are looking to the government in this budget next month. They’re looking to the government to actually give them some relief. And the government already has helped people with their utility bills. And so people want more of that.

Marc Filippino
Does the government and do economists expect the strong growth to continue?

Jude Webber
They are very worried that we’re riding on the crest of the wave, if you like. But things could change. You know, if you have a downturn in the US where a lot of these companies are based, then they could end up making less profits. And if they make lower profits, then they pay less corporation tax. So the fear is that this is all very nice to have, but it’s actually very volatile.

Marc Filippino
Jude Webber is the FT’s Ireland correspondent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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