Irish authorities look "relatively well prepared" for a no-deal Brexit and the economy would stand to gain from additional foreign direct investment (FDI), says ratings agency, Moody's.
In a new report, the ratings agency adds that Brexit remains the largest external threat to Irish growth prospects due to the close trading links with Britain.
“The Irish economy would be negatively impacted by a no-deal Brexit, with the agricultural and agribusiness sectors the most affected. The re-emergence of a [hard] border between the Republic and Northern Ireland would disproportionately affect bordering regions,” it said.
Moody's is forecasting GDP growth of 4 per cent for the Republic this year, which it expects to slow to 3 per cent in 2020 due to continued growth in private consumption and recovering residential investment. By comparison, the Central Bank predicts GDP growth of 4.9 per cent this year and 4.1 per cent in 2020, having revised its forecast upwards last month from 4.2 per cent and 3.6 per cent respectively.
“Even as Irish growth slows gradually over the coming years, it will continue to outperform most of its euro area peers, supported by the high competitiveness and productivity of the multinational sector as well as favourable demographics,” Moody’s said.
Its study predicts the State’s economic prospects will remain strong on the back of substantial competitiveness gains, as well as robust export and productivity growth. But it also warns that the Republic has “an unusually high degree of economic volatility”, which it attributes to having an open economy and being heavily integrated into multinationals’ global value chains.
Trade tensions
It warns that in addition to Brexit, the trade tensions between the US and China are also a major risk for the Irish economy, as are potential changes to the global tax environment.
“Upgrades or downgrades of Ireland’s credit rating would likely be linked to developments in the government’s fiscal and debt metrics. The Irish authorities currently foresee a very gradual further improvement of fiscal accounts, as focus turns to boosting infrastructure investment over coming years,” the ratings agency said.
“A further significant reduction in public debt could lead to an upgrade, while indications of waning commitment to sound public finances and lower public debt could put downward pressure on the rating,” it added.
The agency’s current rating for the Irish economy is A2 stable, which it said “reflects and open, flexible and wealthy economy”.
