In search of a new economic playbook

This is an audio transcript of the FT News Briefing podcast episode: ‘In search of a new economic playbook’

Marc Filippino
Good morning from the Financial Times. Today is Monday, August 28th, and this is your FT News Briefing.

[MUSIC PLAYING]

Investors are bracing for a rough earnings season in China, and the central bankers meeting in Jackson Hole left a lot of people feeling uncertain about the global economy. Plus, Ireland has become a hub for the life sciences industry. But could higher taxes make things a little less comfortable for companies? We’ll take a look. I’m Marc Filippino, and here’s the news you need to start your day.

[MUSIC PLAYING]

There is a lot of pessimism surrounding Chinese companies reporting second-quarter earnings this week. Forecasts expect that these companies will downgrade outlooks, especially in sectors that are heavily exposed to struggling real estate and finance. There’s also a lot of doubt that Beijing will provide the stimulus needed to kick the country’s economy back into gear. But there have been brighter spots reported for the quarter so far. Companies in the consumer and technology sectors have benefited more than most.

[MUSIC PLAYING]

The world’s central bankers wrapped up their annual economics symposium in Jackson Hole, Wyoming, over the weekend. And while the threat of inflation isn’t as bad as it was a year ago, central bankers are worried about the structural changes upsetting the global economy. Here to talk about the gathering is the FT’s US economics editor, Colby Smith. Hey, Colby, how is Jackson Hole?

Colby Smith
Hi, Marc. It was great. Busy, busy couple of days.

Marc Filippino
Yeah, I can imagine. So last week, in the run-up to the symposium, we mentioned that all eyes would be on Federal Reserve chair Jay Powell and his speech. What did he end up saying?

Colby Smith
So that was definitely the main event. Basically coming into Jackson, it’s all really anyone talks about. And Powell kind of very much delivered the speech that people were kind of broadly expecting to a certain extent in terms of recognising that the fight against inflation isn’t yet over. But also, you know, signalling in some ways that they feel a little bit better about where they are at this current moment, especially compared to last year.

Marc Filippino
Now, while Powell got most of the limelight, the head of the European Central Bank Christine Lagarde also spoke at the meeting. She pointed more towards the challenges that are likely to upset business as usual in the global economy. Here she is recounting those concerns to Bloomberg.

Christine Lagarde
We are facing major shifts. One is there is a complete change in the labour market. There’s a complete change in the energy future that we are facing. And there is a complete shift in how geopolitical forces organise our economies. And we need to address each and every one of these three.

Marc Filippino
So, Colby, that’s the labour market, energy future and geopolitical forces. What exactly is Lagarde concerned about in each of these three?

Colby Smith
The real fear is that we’re entering a period of more frequent supply shocks, more persistent price pressures. And that in turn could potentially lead to more volatility across financial markets if central bankers don’t really navigate those challenges. You know, we heard this from a number of people on the sidelines of the conference who worried that these transitions would not be frictionless. And what I kind of picked up on and what was repeated to me throughout the couple of days was the fact that, you know, policymakers need to think about this in the context of new playbooks, new economic models, now that potentially some of those established economic relationships may no longer hold true.

Marc Filippino
That’s the FT’s US economics editor Colby Smith. Thanks, Colby.

Colby Smith
Thank you.

[MUSIC PLAYING]

Marc Filippino
Ireland has enjoyed a huge surge of investment from life sciences companies over the past decade. It helped the country become the European Union’s top performing economy for the past two years. But now that could all change. Here to discuss this is the FT’s US pharmaceutical correspondent Jamie Smyth. Hi, Jamie.

Jamie Smyth
Hello.

Marc Filippino
So when we’re talking about life sciences, we’re mainly talking about pharmaceuticals and medical devices. Why has Ireland been so appealing to the companies that deal with these sorts of things?

Jamie Smyth
I think there are really several reasons why Ireland’s become so attractive to life science companies, and one of the top reasons is, of course, tax. Ireland has a very low rate of tax in comparison to other European Union members and even other global countries. I think there’s two other reasons. One of these is based on Ireland’s EU membership. So a lot of American life science companies have actually moved there to serve European markets, and they’re very comfortable with the culture and the language and the regulatory approach in Ireland. And I think one of the last reasons, but a very important reason, is that the Irish government has been very pro-business and actually quite stable in relation to its enterprise policies for really the last 30 or 40 years.

Marc Filippino
So you mentioned that the low corporate tax rate has attracted a lot of these companies, but now Ireland is looking like it’s going to raise that rate to 15 per cent from 12 and a half per cent. How big of an impact is that tax rate rise going to have on future investment in the country?

Jamie Smyth
This tax reform is really being grudgingly implemented by the Irish government. It fought tooth and nail to keep its rate of 12 and a half per cent because it really values providing certainty to investors. But it was forced to change under pressure from its EU partners and other countries, and it’s accepted this under a global tax reform which is being led by the Paris-based OECD. So most experts do not believe the higher rate will dent its attractiveness, at least in the short term. The 15 per cent rate is still pretty competitive. For example, the average rate in European OECD members is about 21 and a half per cent. So that’s higher than Ireland’s. And also, if you look at Ireland’s closest neighbour, the UK, it’s recently raised its rate from 19 per cent to 25 per cent. So Ireland’s really still very competitive.

Marc Filippino
Right. The OECD is an organisation that includes some of the world’s richest countries, and it works on tax and other international matters. So Jamie, besides this tax — the one that we’re talking about here in Ireland — are there other potential issues for the country’s life sciences industry?

Jamie Smyth
I think one of the biggest challenges in Ireland at the minute for employers is really ensuring that their staff can find affordable housing. It’s a very fast-growing population. Not enough houses have been built, and the recent refugee crisis linked to the Ukraine war means rents are extremely expensive. And there’s another concern to do with infrastructure, mainly the access to adequate electricity and power infrastructure, which is really needed by these big bioprocessing plants. So these could become limiting factors in the future.

Marc Filippino
So given all these headwinds, should Ireland be optimistic about its ability to keep bringing in this crucial investment?

Jamie Smyth
Yes, I think Ireland’s still really well-placed here. It’s established a good track record of delivery for the life science industry over the last two or three decades. It’s proved that it can make complex biological medicines. You know, I’m thinking things like the Covid vaccines. Also, companies have already sunk billions of dollars into the advanced biomanufacturing plants all across the country, and that’s created a cluster of skills which make it really more difficult for these big companies to move their operations. And when you think that the farm and life science industries are regulated very heavily, they’re also very conservative. So when they find a good partner, they’re really reluctant to shift overseas and to other locations.

Marc Filippino
Jamie Smyth is the FT’s US pharmaceutical correspondent. Thanks, Jamie.

Jamie Smyth
Thanks, Marc.

[MUSIC PLAYING]

Marc Filippino
Before we go . . . (Protesters chanting in Spanish) . . . protesters in Madrid demanded that the head of Spain’s football federation stepped down after he forcibly kissed a player. The federation’s president, Luis Rubiales, kissed star player Jenni Hermoso without her consent after Spain beat England in the women’s World Cup final last week. The storm over the kiss has put a spotlight on how women are treated in Spain, whether they’re star soccer players or in regular day-to-day life. Last Friday, dozens of players said they would not play for Spain until Rubiales was gone. And now corporate sponsors are voicing their concerns. Representatives from the energy group Iberdrola, the airline Iberia, beer manufacturer Cervezas Victoria, have all issued statements condemning actions that threatened the dignity and safety of women. None of the companies, though, raised the possibility of cutting ties with the association or the national team. On Saturday, soccer’s global governing body Fifa suspended Rubiales.

[MUSIC PLAYING]

You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

[MUSIC PLAYING]