Why the Irish economy is hot

This is an audio transcription of the FT press briefing podcast episode: why the Irish economy is hot

Marc Filipino
Hello from the Financial Times. Today is Tuesday, August 9, and it’s your FT News Briefing.

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China continues to deploy its military might. Investors wonder if the rally in US tech stocks will last. And European economies look really gloomy, but there is one small exception. I’m Marc Filippino and here’s the news you need to start your day.

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The United States yesterday announced an additional $1 billion in military aid to Ukraine. It is the largest military package since the start of the Russian invasion. In total, the Joe Biden administration sent nearly $10 billion in security aid to Ukraine. And this latest round comes as Ukraine prepares for a new offensive in the south of the country. He wants to recapture the city of Kherson and prevent Russia from using the Dnipro River as a natural barrier. US aid will include, among other things, ammunition and armored medical vehicles.

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China continued its military exercises around Taiwan on Monday. They are seen as a response to US House Speaker Nancy Pelosi’s visit to Taiwan last week. She is the highest-ranking US official to visit Taipei in decades. Our correspondent in Taiwan, Kathrin Hille, reports that the Chinese military has also crossed an unofficial demarcation line in the Taiwan Strait.

Catherine Hille
Both sides mostly stuck to that, so they stuck to their side of that unofficial line. China started crossing it again more frequently in times of high tension about two years ago. But now they have told state media that they believe they have succeeded in erasing that midline completely. And they also started talking about how these exercises are conducted in their own waters and therefore legitimate. So it seems that they actually took advantage of this opportunity to establish a more frequent military presence much closer to Taiwan.

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

Catherine Hille
Well, that’s important because the People’s Liberation Army could, if they had the capacity, start operating much more often, maybe even regularly on the Taiwan side of the Taiwan Strait. It just means that you could, with little or no warning, really, they could suddenly be over our heads here. So really, the next step leads to the big question of whether the United States will take action, do something.

Marc Filipino
And another issue, Kathrin, is actually between Taipei and its main defender, Washington. You reported that the two sides disagreed on military strategy toward mainland China. Can you tell us a bit more?

Catherine Hille
The United States has pressured Taiwan to forget about big, prestigious platforms like new warships and more new fighters, and instead focus on very down-to-earth capabilities that would allow something as a guerrilla force to wage a bloody war, preventing the PLA from gaining full control. So basically some of the things that have proven to be quite effective in Ukraine, in defending against the Russian onslaught, but the Taiwanese military still thinks that just focusing on those things like small portable missiles that are very mobile and cheap and coastal defense missiles, etc. is not enough. And they think last week kind of proves their point because if they hadn’t had their own fighters to rush against the Chinese, maybe the Chinese air force, of course , would have approached much more quickly. There is therefore this great disagreement which fundamentally prevents Taiwan from rapidly strengthening its defenses.

Marc Filipino
This is the FT’s 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 slipped in a bear market, but things turned around. The Nasdaq has rebounded nearly 15% since last month, in part because second-quarter earnings were better than expected. But investors are divided on how long the tech rally will last. Here’s FT asset management reporter Chris Flood explaining why some people think tech stocks will continue to rise.

Chris Flood
So yeah, I mean, the reasons for the optimism is because there’s a very strong secular growth story behind technology investments. I mean, new technologies like cloud computing are becoming developments of real substance. The greatest popularization of electric vehicles. The widespread expectation that companies are going to have to keep spending on technology to ensure they can stay competitive, of course. Another reason for optimism is that some investors believe that improving valuations will further stimulate M&A activity. And perhaps we might even see strategic buyers, mature tech companies, stepping in to strike deals to bolster their own businesses.

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

Chris Flood
So I guess there are two sets of concerns. The first would be that we are not done with earnings downgrades. So, although valuations have fallen, there may be further earnings weakness in the second half of this year and as we approach 2023. A second reason for caution is that some strategists are wondering whether this is what is described as a bear market bounce, as if it were just a temporary respite. Seeing these bear market bounces was a common feature of the last time the Nasdaq was in an extended bear market between 2000 and 2003. So the jump we’ve seen since July has some strategists thinking this won’t be the beginning of a sustained recovery.

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

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Europe’s economic outlook is quite bleak. Growth is close to zero and a recession is looming. But there is Ireland. The Emerald Isle’s economy is hot. In the last quarter, it rose by more than 6% and the government is enjoying a massive windfall of corporate tax revenue. This is Jude Webber, correspondent for the FT in Ireland.

Jude Weber
So multinationals and these are tech giants like Apple, Amazon, Facebook, Meta, they’ve crowded into Ireland because Ireland for years had a corporate tax rate of just 12.5% . These companies, and they also include pharmaceutical companies, like Pfizer, these companies have done very well during the pandemic. And when their profits increase, their corporate tax payments to the Irish Treasury obviously increase. And so Ireland has just taken in all this money from the multinationals.

Marc Filipino
Now, Jude, as you point out, employment and foreign investment are also at record highs. Considering all this, do the Irish feel richer?

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

Marc Filipino
Do the government and economists expect strong growth to continue?

Jude Weber
They’re very concerned that we’re riding the crest of the wave, if you will. But things could change. You know, if you have a downturn in the United States where a lot of these companies are based, they might end up making less profit. And if they make less profit, they pay less corporate tax. So the fear is that this is all very nice to have, but it’s actually very volatile.

Marc Filipino
Jude Webber is the FT’s Irish correspondent.

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You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

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