This is an audio transcript of the FT News Briefing podcast episode: “In Search of a New Business Book”
Marc Filippino
Good morning from the Financial Times. Today is Monday 28th August and this is your FT News Briefing.
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Investors are bracing for a difficult earnings season in China and the Jackson Hole meeting of central bankers sparked uncertainty about the global economy for many. In addition, Ireland has become a hub for the life sciences industry. But could higher taxes make things a little more uncomfortable for businesses? We’ll take a look. I’m Marc Filippino and here’s the news you need to start your day.
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Chinese companies reporting their second quarter results this week are very pessimistic. Forecasts suggest that these companies will downgrade their prospects, particularly in sectors heavily impacted by the troubled real estate and financial sectors. There are also serious doubts that Beijing will provide the necessary stimulus to get the country’s economy back on track. However, more positive developments have also been reported so far for the quarter. Companies in the consumer and technology sectors have benefited more than most.
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The world’s central bankers wrapped up their annual economic symposium in Jackson Hole, Wyoming over the weekend. And while the threat of inflation isn’t as great as it was a year ago, central bankers are worried about the structural changes disrupting the global economy. Colby Smith, FT’s US business editor, is here to talk about the meeting. Hey Colby, how’s Jackson Hole?
ColbySmith
Hello Marc. It was great. A few busy days.
Marc Filippino
Yes, I can imagine that. That’s why we mentioned last week leading up to the symposium that all eyes would be on Federal Reserve Chairman Jay Powell and his speech. What did he say at the end?
ColbySmith
So that was definitely the main event. When you get to Jackson, that’s all everyone really talks about. And Powell, by and large, gave exactly the speech that people, by and large, were kind of expecting, to acknowledge that the fight against inflation isn’t over yet. But it also signals in a way that they’re feeling a little better right now, especially compared to last year.
Marc Filippino
While Powell now took the most of the spotlight, European Central Bank Governor Christine Lagarde also spoke at the meeting. Rather, she pointed to the challenges that are likely to disrupt normal business operations in the global economy. Here she shares those concerns with Bloomberg.
Christine Lagarde
We are facing big changes. First, there is a complete change in the labor market. The energy future we are facing is about to change completely. And there is a complete shift in the way geopolitical forces organize our economies. And we need to address each and every one of these three aspects.
Marc Filippino
So, Colby, these are the labor market, the energy future, and the geopolitical forces. What exactly is Lagarde trying to do with each of these three points?
ColbySmith
The real fear is that we are entering a period of more frequent supply shocks and sustained price pressures. And that, in turn, could potentially lead to more volatility in financial markets if central bankers don’t really address these challenges. You know, we heard that from several people on the sidelines of the conference who were concerned that these transitions weren’t going to go smoothly. And what kind of struck me and kept reminding me over the course of the few days was that policymakers need to think about this in the context of new policies and new economic models, now that maybe some of those established economic relationships could no longer Have consisted.
Marc Filippino
This is the FT’s US business editor, Colby Smith. Thank you Colby
ColbySmith
Thank you very much.
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Marc Filippino
Ireland has seen a huge surge in investment from life sciences companies over the past decade. It has helped the country become the best performing economy in the European Union over the past two years. But now everything could change. To discuss this is the FT’s US pharmaceuticals correspondent, Jamie Smyth. Hello Jamie.
Jamie Smith
Hello.
Marc Filippino
So when we talk about life sciences, we mostly talk about drugs and medical devices. Why is Ireland so attractive to companies dealing with this kind of thing?
Jamie Smith
I think there are really several reasons why Ireland has become so attractive for life science companies and one of the main reasons is of course the taxes. Ireland has a very low tax rate compared to other members of the European Union and even other countries around the world. I think there are two other reasons. One of these is based on Ireland’s EU membership. Indeed, many American life science companies have moved there to serve European markets and are very familiar with the culture, language and 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 for the last 30 or 40 years and actually pretty stable in terms of corporate policy.
Marc Filippino
So you mentioned that the low corporate tax rate attracted a lot of these companies, but now it looks like Ireland is going to raise that rate from 12.5 percent to 15 percent. What impact will this tax rate increase have on future investments in the country?
Jamie Smith
This tax reform is being implemented with real reluctance by the Irish government. It has been struggling to keep its interest rate at 12.5 percent because it attaches great importance to providing investors with peace of mind. However, under pressure from its EU partners and other countries, it has been forced to change and has accepted it under a global tax reform led by the Paris-based OECD. Therefore, most experts do not expect that the higher interest rate will hurt the country’s attractiveness, at least in the short term. The 15 percent rate is still pretty competitive. For example, the average rate in the European OECD member states is around 21.5 percent. So that’s higher than Ireland. And if you also look at Ireland’s nearest neighbor, the UK, the country recently increased its tax rate from 19 percent to 25 percent. So Ireland really is still very competitive.
Marc Filippino
Right. The OECD is an organization that includes some of the world’s wealthiest countries and deals with tax and other international affairs. So Jamie, besides this tax – the tax we are talking about here in Ireland – are there any other potential problems for the country’s life sciences industry?
Jamie Smith
I think one of the biggest challenges for employers in Ireland right now is ensuring their employees 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 has led to extremely high rents. And there is another concern related to infrastructure, most notably access to adequate electricity and power infrastructure that these large scale bioprocessing facilities really need. These could therefore become limiting factors in the future.
Marc Filippino
With all these headwinds, should Ireland be optimistic that it can continue to make this crucial investment?
Jamie Smith
Yes, I think Ireland is still very well positioned here. The company has a proven track record of providing services to the life sciences industry over the past two or three decades. It has been proven that complex biological medicines can be produced from it. You know, I’m thinking about things like the Covid vaccines. Additionally, companies across the country have already poured billions of dollars into advanced biomanufacturing facilities, creating a cluster of skills that makes it significantly more difficult for these large companies to relocate their operations. And considering that the agribusiness and life sciences industry is very tightly regulated, it’s also very conservative. So when they find a good partner, they really hesitate to go abroad or other locations.
Marc Filippino
Jamie Smyth is the FT’s US pharmaceuticals correspondent. Thank you Jamie
Jamie Smith
Thank you Marc
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Marc Filippino
Before we go . . (Protesters chant in Spanish) . . . Protesters in Madrid called for the resignation of the head of the Spanish Football Federation after he forcefully kissed a player. The federation’s president Luis Rubiales kissed star player Jenni Hermoso without her consent after Spain beat England in the final of the Women’s World Cup last week. The storm over the kiss has put a spotlight on the way women are treated in Spain, whether they are star footballers or in everyday 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 of energy company Iberdrola, airline Iberia and beer maker Cervezas Victoria have all issued statements condemning acts that endanger women’s dignity and safety. However, none of the companies expressed the possibility of cutting ties with the association or the national team. The world football association FIFA suspended Rubiales on Saturday.
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You can read more of all of these stories for free on FT.com by clicking the links in our show notes. This was your daily FT News Briefing. Check back tomorrow for the latest business news.
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