In an overall favourable report, the credit ratings firm notes the Government’s corporate tax receipts are exposed to the decisions of a small number of multinationals.
“A degree of economic volatility requires larger financial and fiscal buffers to deal with negative shocks than would be needed for a more stable economy,” wrote report author Kathrin Muehlbronner, the lead sovereign analyst for Ireland at Moody’s.
The huge distortions to Irish GDP numbers in 2015 came after the CSO was forced to upgrade growth estimates to 26.3% after one or more unnamed multinational shifted huge amounts of intellectual property rights into Ireland.
To take account for the huge distortions, Moody’s said it had revised its own scorecard for the strength of the Irish economy to “high” from “the indicative score of very high”.
Ms Muehlbronner wrote that Ireland “is also more exposed than most peers to potential shifts in global taxation rules.”
“Ireland’s exposure is particularly large with regards to the United States, given that many of the Ireland-registered companies originate from tne US and a change to US corporate tax laws seems likely,” she wrote.
Further risks exist as the UK negotiates to exit the EU because Irish-owned firms rely heavily on the UK market, even though Ireland may lure more UK firms that need continuing access to the EU trading bloc after Brexit, according to the report.
Improved regulations since the financial crash mean Moody’s scores the country’s “institutional strength as very high” and sets its “susceptibility to event risk” at “moderate”, with non-performing loans held on the balance sheets of Irish banks still at elevated levels.
Ireland’s debt pile, which is down dramatically from a crisis-peak of 119.5% of GDP in 2012, will continue to edge lower, to reach 72.4% of GDP in 2018, Moody’s forecasts. The economy will “continue to grow strongly”, helped by consumer spending. It estimates the economy expanded 4.5% in 2016 and forecasts it will grow 3.1% this year and by 3% in 2018.
Separately, consumer sentiment has fallen sharply in Dublin compared with the rest of the country, the regular consumer sentiment survey by KBC Bank Ireland and the Economic and Social Research has found. It could reflect a number of factors, including the huge shortages of homes in the capital, the survey said.