The Irish economy is likely to outperform its eurozone peers despite the growing risk of a hard Brexit, ratings agency Moody’s said in a report.
It came out as Germany, the eurozone’s largest economy, was revealed to have slipped into recession in the second quarter of this year. Moody’s expects growth of 4pc for Ireland this year, dropping to 3pc in 2020, and says that the factors driving growth will shift from exports to private domestic consumption and residential.
“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,” the agency said.
That compares with Central Bank of Ireland forecasts of 4.9pc this year and 4.1pc in 2020, although the Bank warned this could fall to zero if there is a hard Brexit.
“The probability of a no-deal Brexit has increased following the election of Boris Johnson as Conservative Party leader, and therefore UK prime minister, in July 2019,” Moody’s said.
The report, in which Ireland’s A2 stable credit rating remained unchanged, said that debt dynamics had improved thanks to a halving of the public debt ratio between 2012 and 2018, as a result of “the country’s open, flexible and wealthy economy that has staged an impressive recovery over the past few years”.
“Moreover, economic prospects are strong on account of substantial competitiveness gains, as well as robust export and productivity growth,” Moody’s said. “A further significant reduction in the public debt level could lead to an upgrade of the rating,” it added.
Despite the positive overall picture for the economy, Moody’s cut the State’s economic strength score downwards from ‘Very High’, as a result of the distortions in real and nominal gross domestic product numbers brought about by a limited number of transactions by multinational corporations resident in Ireland.
That put Ireland in a grouping with the Czech Republic, which has a higher rating at A1, and Italy, which is rated by Moody’s as Baa3, the bottom rung of the investment-grade scale.
Those distortions feed through into the income per capita comparisons with Ireland’s A2 credit rating peer group, as the State’s GDP per capita in purchasing power parity terms was more than twice the average for A-rated sovereigns.
Slowing global trade and the prospect of big tax changes are the other key risks to Ireland, aside from Brexit, Moody’s said.
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