Buckle up: 2024 likely to be the most interesting year in decades
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2023 started on a note of real optimism. The covid restrictions were a thing of the past, and the economy was rebounding. Domestic business delivered in spades for Ireland and we rapidly reached full employment. Inflation was of course a concern but everyone who wanted a job had one.
For those businesses in trouble, 2023 was the year we saw the newly-enacted SCARP process start to work. The Corporate Enforcement Authority notes 46 SCARP applications since 2021, of which 10 have a rescue plan in place. SCARP was never intended to “raise the dead,” merely to ensure that vulnerable but viable businesses could continue if they had a chance to do so. It is clearly working and is a real feather in the cap for our colleagues in the Department of Enterprise.
Unfortunately, 2024 looks set to be an extremely volatile year internationally.
China is trying to stimulate its way out of a deepening financial crisis. Authorities there have far more control over their economy than do their Western counterparts, so it will be interesting to see if they succeed. The exposure of European banks to China is small, if we ignore UK banks HSBC and Standard Chartered. However, the exposure of US banks is substantially larger, though it has been declining.
Even if it does not, a financial collapse in China will have unpleasant tail effects for the rest of us.
China has also been actively mischief-making in EU politics, targeting a far-right Belgian politician, a joint investigation by the , , and has found. The purpose of the activity by the Chinese secret service was to undermine scrutiny of China’s crackdown on democracy in Hong Kong, and the persecution of the Uyghurs in Xinjiang.
Given the activities of our far-right groups in the immigrant protests, and the cut-and-paste regurgitation of Kremlin anti-Ukraine sentiment by some of our left-wing politicians, it is safe to assume that external actors will continue to try to influence our domestic politics. This is very worrying, in what could be a general election year.
The Israel-Palestine conflict shows no sign of abating until well into the new year.
Aside from the dreadful human toll in Palestinian and Israeli blood, a continuation of high-intensity Israeli operations in Gaza risks a rekindling of the “Arab Spring” that brought civil conflict to so many countries. It also threatens a regional spread to Israel’s neighbours.
In the Arabian Gulf, increasing numbers of shipping firms are avoiding the Suez Canal since Houthi Rebels in Yemen have extended their range of action into the Red Sea, attacking international shipping.
Newly-installed Argentine president Javier Milei has made threatening noises towards the Falkland Islands, while Venezuela’s President Maduro recently held a referendum on Venezuela annexing Guyana’s Essequibo region, which amounts to about two thirds of its national territory. By complete coincidence, Guyana’s proven oil reserves are larger than Venezuela’s.
Unrelated in Latin America is the impact of climate change on the Panama Canal. The canal is in the process of reducing the maximum number of daily transits to just 18 from February 2024, fewer than half the 40 or so it normally manages. And this is before the Central American dry season arrives.
The upshot of the Panama and Suez issues is a potential return to pre-1859 shipping patterns for much of the world’s maritime trade, taking more ships around Cape Horn and the Cape of Good Hope. This will result in longer freight routes and delivery times, higher shipping costs, and greater carbon emissions from our goods imports and exports.
Putin continues his "special military operation" in Ukraine. The conflict has slowed to a static line in Ukraine’s southwest, without any sign of a breakthrough by the defender.
The EU has, however, indicated its intention to open membership talks with Ukraine. While it will take time to happen, the admission of an agricultural producer the size of Ukraine to the EU will fundamentally alter the CAP.
Perhaps the most disruptive event in 2024 could be the re-election of Donald Trump to the US presidency. Reverting to the “America First” policy of his first administration, we could see a trade war between the US and Europe, as well as a possible withdrawal of the US from Nato. Were this to occur, the pressure on Ireland to address its longstanding policy of defence and intelligence freeloading would be extreme, and would force the Government to reconsider whether we have the right senior team in place in the Department of Defence. The effects on the stability of large US multinationals based here could also be significant, as would the implications for our corporation tax returns.
The domestic environment looks equally volatile for 2024.
With the Exchequer tax take likely to be impacted by economic performance, largesse in Budget 2025 is likely untenable. Unfortunately, with a general election likely, it will be difficult to avoid the “something for everyone” approach that has been adopted by the Government to date.
While ECB interest rates seem to have peaked, the rate of reduction in 2024 is in question. The ECB is specifically looking at wage inflation as a proxy for services price inflation. Yet the Government has agreed a 12.4% increase in the minimum wage and is talking to public service unions about a significant pay increase for the 385,000 public servants who already enjoy a 24% pay premium over their counterparts in the private sector. The familiar fragrance of 2009?
A slew of employment-side adjustments will negatively impact the labour market in 2024. The aforementioned and largest-ever increase to the national minimum wage, additional statutory sick pay, increased employers’ PRSI, auto-enrollment, and “enhanced reporting” of expenses will add significantly to employment costs.
The business cost agenda remains unaddressed. Public and employer liability insurance costs have not fallen, despite reforms. Energy, housing, labour, and finance costs remain the highest in Europe. Another year passes with failure to tackle legal costs, and the Government appears mysteriously afraid to publish the Indecon report on legal fees which was completed six months ago. Who benefits from this timidity?
Technology is about to take its greatest leap since the proliferation of the internet in the 90s. Much has been made of AI, which will no doubt be huge, but a lot of paid AI services are already over-promising and under-delivering. AI will progressively automate boring, homogenous, rules-based tasks, allowing businesses to better focus on the knitting. But it should be considered an enabler rather than a replacer. Quantum computing will arguably be far more impactful. Its misuse would undermine the encryption technology upon which most of our electronic financial transactions take place.
The cryptographic power of quantum threatens not just fintech, but the underpinnings of the web itself. As we have seen with the successful hack on the HSE, our infrastructure is as secure as our weakest link. The cost of quantum computing will probably lead to another digital divide, with the wealthy, both states and corporate actors, having access to far more computing power than traditional computer users.
Buckle up. 2024 is likely to prove the most interesting year in decades.
- Neil McDonnell is CEO of the Irish SME Association (ISME)