Brexit will still hit Ireland’s economy hard despite attracting increased levels of investment, according to Moody’s Investors Service.
In an annual report, the credit ratings firm said external shocks from Brexit and the plans for an overhaul of US corporate tax by Donald Trump’s White House pose the greatest threats to an economy which carries huge amounts of public debt from the financial bust.
“Larger” fiscal reserves or capital buffers could help insulate the economy, according to Moody’s analysts Kathrin Muehlbronner and Dietmar Hornung.
Despite attracting more foreign investment, they warn that “Ireland will be the EU country most heavily affected by Brexit”.
The Trump administration could pose another external shock, they predict.
“The corporate tax reforms currently under discussion in the US could potentially be a further negative development for Ireland, given that around half of all foreign direct investment originates from the US and Ireland’s low corporate tax rate has been a key driver — albeit not the only one — for the large presence of multinationals,” state the analysts.
However, Moody’s is more relaxed than many other commentators about the threat of another house prices boom or large wage rises once again putting the economy under water.
Their views chime with those of Central Bank governor Philip Lane, who said earlier this month that the regulator now has the tools to control any house credit-lending boom.
“Moody’s is less concerned over domestic risks,” state the Moody’s analysts. “While house prices have been rising strongly over the recent past, the increase comes from very depressed levels. House prices are still around 10% below the levels seen in the mid-2000s, prior to the bubble period, and approximately 30% lower than the peak reached in 2007.
“In Moody’s view, the risk of a return to a credit-fuelled housing bubble is therefore currently low, although the sector merits close monitoring. ”
The analysts add that the Government’s plans for “a rainy day” fund from 2019 could help insure against too much money being injected into the economy.
Moody’s is also soothing on the outlook for wage increases.
“While we expect wage growth to accelerate somewhat against the background of continuing employment growth and somewhat higher inflation, we consider the risk of an overheating economy or a material loss of competitiveness due to excessive wage increases to be limited at this point,” the analysts say.
Moody’s also said the eventual departure of Taoiseach Enda Kenny would trigger few changes in Government policies.
Opinion polls suggest that neither Fine Gael nor Fianna Fáil have much to gain from forcing an early election.
Separately, CSO figures published yesterday had mixed news about the effects on Irish exporters from the slump in the value of sterling.
Exports to Britain fell to almost €1.13bn in March, down 1% from a year earlier, despite small increases in the exports of food and live animals and a decrease in the exports of Machinery and transport equipment, said the CSO. Exports to Britain in the first three months of the year rose by 4% compared with the first three months of 2016.
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