Moody’s: Brexit won’t hit ‘robust’ Ireland’s rating
EVEN with the risk of a hard Brexit, the State’s credit rating looks secure thanks to the economy’s “very robust” fundamentals, ratings agency Moody’s believes.
The unknowns from Brexit have risen as Prime Minister Theresa May’s proposed deal has failed to satisfy many of those seeking a clean break from the European Union as well as those who wish to retain stronger links.
“Despite the enhanced risks, we see Ireland in a pretty strong and stable situation,” sovereign risk analyst Sarah Carlson told a presentation in Dublin yesterday.
Ms Carlson said that Ireland did need to build up budget reserves to offset the risks from being a small open economy.
Moody’s rates Ireland A2 and believes that a no-deal Brexit would knock 4pc points off UK growth over the longer term, although its central case is not for a cliff-edge exit.
It did not model the impact of a no-deal exit on Ireland’s growth, although other forecasts have said a no-deal Brexit would lop between 4pc and 7pc points off long-term economic growth here.
Under most assumptions that would still mean positive economic growth here, but at a slower pace.
Ms Carlson said that while Ireland had been helped by the “very strong” levels of economic growth seen in recent years, there had also been an improvement in public finances. The Government ran a budget surplus last year for the first time since 2006.
And although revenues were bolstered by hefty corporation tax payments by a handful of multinationals – and by a blistering 7pc-plus pace of economic growth – the turnaround in finances has been dramatic. In 2010, the budget deficit – after recognising the liabilities from the financial sector – was almost a third of the nation’s economic output, while the State’s debt as a percentage of GNI* fell by 55pc points from its peak in 2012 to 111pc of Gross National Income at the end of 2017. “This is a small, open economy that can be hit hard by events outside its borders,” Ms Carlson said.
Although the State’s credit rating has recovered from the lows seen during the financial crisis, it remains below the peak it hit before the crisis, when Moody’s rated Ireland Aaa, a full five grades above its current level.
However, Ms Carlson warned that the economic cycle was now turning: “It is kind of as good as it gets.”
The sugar rush provided to the US economy by President Donald Trump’s tax cuts is now fading, Chinese growth is slowing and the European Union is struggling to grow at all.
‘Despite risks, we see Ireland in a strong and stable situation’