A late sell-off in US equities led to a 0.5% decline in the S&P 500 at the close yesterday as concerns grew that negotiations between Democrats and Republicans to avert the US fiscal cliff are making little progress. European stock index futures point to marginal declines when markets open this morning, presumably as investors price in concerns on the US fiscal cliff says Conall Mac Coille, Chief economist.
This morning, Davy’s have published a report on the Irish pharmaceutical sector and patent cliff. In 2011, exports of pharmaceuticals were €50bn, around 30% of nominal GDP. In September, Irish industrial production fell by an enormous 12.7% on the month, driven by a 35% decline in output of basic pharmaceuticals, and in part most likely related to patent expirations on ‘blockbuster’ drugs. The falls in September have fed speculation that prospects for the key pharmaceutical sector, worth 30% of Irish GDP, may now be depressed by patent expirations, with potentially dire consequences for Irish export and GDP growth.
However, Davy’s said these fears are largely misplaced. Due to the high import content of pharmaceuticals, specifically royalties and licence counted as imports, the impact on Irish GDP and GNP will be limited. Only approximately one-third of pharmaceutical export revenues contribute to Irish GDP. In 2011, the share of pharmaceuticals in Irish GDP was just 11%, well below exports revenues worth 30% of GDP. The pharmaceutical sector accounts for 1.2% of total employment, and contributed corporation tax revenues worth 0.5% of GDP. So, even if profits in the sector halved, the impact on GDP and tax revenues would be limited, and manageable within the context of Ireland’s EU/IMF adjustment program.