Ire­land grow­ing at a strong pace, Brexit risk re­mains, says DBRS

Financial Mirror (Cyprus) - - FRONT PAGE -

DBRS, Inc. con­firmed on Fri­day the Repub­lic of Ire­land’s long-term for­eign and lo­cal cur­rency is­suer rat­ings at A (high) and its short-term for­eign and lo­cal cur­rency is­suer rat­ings at R-1 (mid­dle). All rat­ings have a Sta­ble Trend.

The con­fir­ma­tion of the rat­ings re­flects Ire­land’s strong eco­nomic per­for­mance and im­prov­ing pub­lic fi­nances. Though the UK vote to exit the Euro­pean Union poses down­side risks, the Ir­ish econ­omy is ben­e­fit­ing from sub­stan­tial growth mo­men­tum and pub­lic debt dy­nam­ics con­tinue to im­prove.

The A (high) rat­ings are un­der­pinned by Ire­land’s open­ness to trade and in­vest­ment, young and ed­u­cated work­force, flex­i­ble labour mar­ket, and ac­cess to the Euro­pean mar­ket, all of which sup­port the econ­omy’s com­pet­i­tive­ness and solid medium-term growth prospects. These strengths are coun­tered by sev­eral credit weak­nesses, in­clud­ing high pub­lic debt, medium-term fis­cal pres­sures, heav­ily in­debted house­holds and as­set qual­ity con­cerns in the bank­ing sys­tem. DBRS said cur­rent ex­pec­ta­tions do not in­cor­po­rate any ram­i­fi­ca­tions from re­cent cor­po­rate tax-re­lated an­nounce­ments, but it will con­tinue to fol­low these events as they de­velop.

The re­cent re­vi­sion to Ire­land’s Na­tional Ac­counts data led to a large in­crease in GDP in 2015. This ap­pears to be largely driven by the on­shoring of in­tel­lec­tual prop­erty by multi­na­tional firms in Ire­land. Ac­cord­ing to the new se­ries, GDP ex­panded 26.3% in 2015, up from pre­vi­ous re­port­ing of 7.8%. The up­dated fig­ure clearly does not re­flect the pace of un­der­ly­ing growth in the Ir­ish econ­omy. Fur­ther­more, the rat­ing agency said the sta­tis­ti­cal re­vi­sion does not change its view on Ire­land’s sov­er­eign cred­it­wor­thi­ness, de­spite the ben­e­fi­cial ef­fects on some pub­lic fi­nance met­rics ex­pressed as a share of GDP.

Ir­re­spec­tive of the sta­tis­ti­cal re­vi­sion, a range of in­di­ca­tors con­firm that the Ir­ish econ­omy is grow­ing at a strong pace. Im­prov­ing labour mar­kets and strength­en­ing con­sumer con­fi­dence are lift­ing pri­vate con­sump­tion. Firms are in­vest­ing fol­low­ing years of cut­backs. Ex­ter­nal fac­tors have also bol­stered the econ­omy’s per­for­mance, with Ire­land ben­e­fit­ing from low en­ergy prices and mod­er­ate growth from key trad­ing part­ners. Even in­clud­ing the fall­out from the Brexit vote, the out­look for the Ir­ish econ­omy is favourable. The IMF projects GDP growth of 4.9% in 2016 and 3.2% in 2017, al­beit with down­side risks.

The 2015 fis­cal deficit fell com­fort­ably be­low 3% of GDP for the first time in eight years, thereby en­abling Ire­land to exit its Ex­ces­sive Deficit Pro­ce­dure on sched­ule. Ire­land is now sub­ject to the preven­tive arm of the Sta­bil­ity and Growth Pact (SGP). With spare ca­pac­ity in the econ­omy di­min­ish­ing, fis­cal pol­icy is shift­ing to a more neu­tral stance. Rev­enue growth in 2016 is out­pac­ing ex­pen­di­ture growth, sig­nalling less fis­cal im­pulse. The deficit is pro­jected to nar­row to EUR 2.0 bln in 2016, down from 3.2 bln last year (ex­clud­ing one-offs).

The com­mit­ment to re­main com­pli­ant with EU fis­cal rules was re­in­forced by the pol­icy agree­ment reached between the Fine Gael mi­nor­ity gov­ern­ment and the main op­po­si­tion party.

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