Friday, December 20, 2013

A changed New Year outlook for Ireland

The improved Irish economic outlook for 2014 is a welcome change from grim past New Year forecasts.

SEE Ireland: GDP or GNP? Which is the better measure of economic performance?

On the use of GDP or GNP, since companies such as Accenture, the US management consultants, began switching their headquarters to Ireland in 2009, the GNP metric has become a less reliable metric. This tax-avoidance move makes these firms become Irish companies.

John FitzGerald of the ESRI estimated that in 2012 [pdf], these companies accounted for €7.4bn in retained profits or 5.5% of GNP. Incremental undistributed earnings boosted GNP growth by 1%. These earnings also pollute the balance of payments. 

This year the big entrant is Eaton, a US power manufacturer, with retained earnings of €4bn. So the boost could be over 4%.

As for the drugs patent cliff, which has cut industrial production and goods exports, it will resume in 2005 with several expirations.

Eli Lilly is taking a big hit this month with Cymbalta, its anti-depression drug, which accounts for about a quarter of revenues.

Amgen's white blood cell booster Neupogen, which had sales to Sept 2013 of $1.1bn also lost its patent protection in December.

The biotech drugs are more difficult to clone but Amgen, the leading firm, made a defensive move last year with the acquisition of a Turkish drugs firm for $700m.

The problem for the drugs industry is that sales of some of the recent launches have disappointed because the benefits compared with existing products have not convinced players such as insurers and governments.

Pfizer's Lipitor peaked at $13bn in 2006 and sales in the period 1996-2012 amounted to $141bn.

As for biotech, most firms never make a profit and the industry posted its first profit in 40 years in 2008, only because of the performance of a small number of firms including Amgen.