US rating downgrade a timely boost for Ireland

IRELAND is a more attractive location for US companies to set up operations as a direct result of Standard & Poor’s stripping the US’s triple A credit rating, according to the Irish Exporters Association (IEA).

IEA chief executive John Whelan said the fall in the value of the US dollar and the general financial crisis is paradoxically making Ireland look a more attractive base for US multinationals, particularly as Irish labour costs have also been falling for the past two years. S&P cut the US rating one level to AA+ from AAA for the first time late on Friday while keeping the outlook at “negative”. S&P criticised the US political system for failing adequately to address deficit reduction.

“The United States is Ireland’s largest trading partner and, therefore, any major jolts to the US economy must be monitored very carefully. The downgrading certainly heralds a changing world order in economic ratings , and may force other trading blocks and, in particular, the EU to tackle their sovereign credit management issues more comprehensively,” he said.

Mr Whelan said the S&P downgrading of the US’s credit worthiness is expected to further weaken the value of the dollar against most currencies, in particular the euro. Irish exports of goods and services to the US in 2010 was €25.5 billion, representing 15.6% of total exports.

“Many of the multinationals exporting out of Ireland are US corporations and hence, on repatriating the euro profits back to the USA, show a greater gain when the dollar weakens. Also, as the price of oil is denominated globally in US dollars, a weakening of the dollar will improve our cost base for transport, lighting, heating and manufacturing,” he said.

However, Mr Whelan said there is no doubt that the credit rating downgrading of the US economy will create a loss of business confidence and raise the costs of funds for business internationally.

“This is not good news for global trade and exporting industry. We can also expect more volatility in currency markets, and higher costs of credit.

“However, it may also provide the basis for a more aggressive, and wide-ranging solution by G20 countries to the global sovereign debt funding issues and ensure they are tackled more urgently,” he said.

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