Ireland election sees pro-business continuity despite voter discontent

Ireland’s election looks set to have secured victory for the incumbent center-right parties which have dominated the country’s politics for nearly a century, signaling continuity for the business community but belying broad dissatisfaction with many social issues.

Fianna Fáil, led by Micheál Martin, and Fine Gael, helmed by Simon Harris, by midday Monday appeared able to form a coalition just shy of a parliamentary majority in the 174-seat Dáil, and are now expected to seek backing from one or two smaller opposition parties to form a government.

A key question will be who takes on the role of taoiseach, the Irish leader, given that Harris currently holds the role but Fianna Fáil will become the bigger party. One possibility is a repeat of the rotating power-share arrangement the two parties previously brokered in 2020, when they first entered a coalition.

Friday’s vote delivered some shock losses for high-profile names, along with disappointment for previous coalition member the Green party — which retained just one of 12 seats — and for left-wing challenger Sinn Féin, which is expected to equal Fine Gael’s number of TDs (parliamentarians),  but does not appear able to begin its own coalition talks. Fianna Fáil and Fine Gael have ruled out a partnership with the left-wing party.

The result “breaks with the trend seen internationally this year for weaker incumbent election results,” analysts at investment firm Davy said in a note.

“The only surprise is that there was no surprise. The electorate has said we want the same, or at least that is the outcome of the election,” Laurent Muzellec, dean of Dublin’s Trinity Business School, told CNBC by phone.

“However, underlying that, there is a frustration from a growing part of the Irish population that has not been captured in this election. It appears Sinn Féin haven’t captured this sense of frustration, seen in the fact that there was a low turnout of 59%. Talking to people, you have a different feeling than the result may indicate,” Muzellec continued.

Chief among those issues is the country’s dire housing crisis which has seen an increase in homelessness, particularly in the capital Dublin, Muzellec said.

Fianna Fáil and Fine Gael have made some commitments to increase housing supply, but the nature of repeated coalition forming means it is unknown exactly which elements of a manifesto will get enacted going forward, Muzellec noted.

Some of that dissatisfaction may have been shown in exit polls in which only 27% named Fine Gael’s Harris as their preferred leader, compared to 35% for Fianna Fáil’s Martin and 34% for Sinn Féin head Mary Lou McDonald.

Economists have questioned whether the country faces an economic threat from Donald Trump’s re-election in the U.S. as he threatens sweeping universal tariffs and a protectionist, “America first” stance.

“Among all euro zone members, Ireland is by far the most vulnerable to a loss of U.S. trade,” economists Andrew Kenningham and Jack Allen-Reynolds of Capital Economics said in a note last month.

U.S. demand accounts for around 1.5% of euro zone economic activity and 1.7% in German, versus 7% in Ireland, according to the research group, which says Ireland “sends a disproportionate share of its exports to the U.S.”

“The economy may also be affected by U.S. corporate tax cuts if they persuade U.S.-based multinationals to shift their operations back from Ireland to the US. That said, we remain optimistic about Ireland’s economic prospects given its other strengths,” the economists continued.

The latest election result confirms that there is no significant political movement in Ireland demanding its own protectionist shift away from its very open economy, Laurent Muzellec of Trinity Business School told CNBC.

This sends out a sign that it is “still a good place to do business, still open to global companies, and as pro-business as it has been for the last 30 or 40 years,” he said.

While the Trump presidency might impact the decision of companies in the future on where to set up, particularly in the pharmaceutical industry where manufacturing facilities are involved, there is very unlikely to be any kind of exodus, Muzellec continued.

“For the big companies, they were initially here for tax reasons but they are now established with thousands of employees,” he said. “Many of those jobs are in sales and customer service for EMEA [Europe, Middle East and Africa] so they need to remain in Europe, so if they leave Ireland, where would they go? The U.K. is no longer part of the European Union, France is politically unstable — their other options are limited.”