Ireland is on the frontline for Brexit battering, S&P warns
Published 10/06/2016 | 02:30
Ireland, Luxembourg, Malta, and Cyprus are on the frontline of economies susceptible to any trade and migratory aftershocks from a Brexit, Standard & Poor's has warned.
The ratings agency said there could be "significant reverberations" for the Irish economy if British voters opt to pull out of the European Union.
Opinion polls in Britain show the rival "remain" and "leave" camps in the referendum almost neck and neck with just over two weeks to go.
"At the least, were the UK to vote to leave the EU on June 23, the uncertainty regarding its new trade and migratory agreements with Europe would take its toll on merchandise, services and human capital, along the Republic of Ireland's 499km border with the UK," the report by S&P said.
"Ireland's financial sector exposure to the UK is also important, reflecting the size of Irish banking subsidiaries operating in the UK."
But the agency said it would expect the "highly flexible" Irish economy to be able to reorient trade towards larger trading partners, such as the remaining EU and US, in the "unlikely" event that an exited UK would not be able to reach new terms on trade with EU negotiators.
"We also think Ireland would be well placed to attract some of the FDI displaced out of a Brexited UK into its own substantial financial services hub, should UK-based financial subsidiaries and branches lose coveted EU passporting rights, which currently enable them to on-sell financial services into the EU market."
Ireland is ranked 3.5 on the sensitivity index, which is well above the 0.8 average.
S&P said the second rank of highly exposed countries include small financial centres Malta and Cyprus.
But it also said that a Brexit could create "headwinds" for the recovering Cypriot economy given the importance of migratory, export and financial links between the two countries.
Belgium and the Netherlands make up the third group of economies, with an average sensitivity index reading of 1.6 versus the 0.8 median.
"In the case of the larger Benelux states, the high score reflects very sizeable export and FDI exposures," he said.
"For the Netherlands, export exposures may be overstated due to high re-exports and royalty payments, however, these also indicate that the highly open Dutch economy, with its large transport and maritime sectors, is far more exposed to a possible Brexit, than large, less open European economies such as France and Germany."
A Dutch government economic forecaster said its exposure to a possible Brexit will be greater than for other members of the bloc, and could trim 1.2pc off the economy by 2030.
The Netherlands Bureau for Economic Policy Analysis (CPB) said the Dutch economy was tied more closely to Britain due to greater trade. "A Brexit will have a relatively severe effect on the economy of the Netherlands," the CPB warned.
Meanwhile, over half of Irish chief financial officers believe Brexit would negatively impact their business, according to the latest European cfo survey from Deloitte. Just 6pc of Irish respondents believe a Brexit would have a positive impact on their businesses, while 23pc feel it will have little or no impact.
Despite these uncertainties, Irish cfos remain optimistic about the prospects of their own companies with 45pc optimistic than they were six months ago.
Separately, Blackrock, the world's largest asset manager, said financial markets, particularly equities, may be under-pricing the risk of Brexit.
Meanwhile, Virgin Atlantic Airways fears it will suffer a slump in demand if Britain exits the EU as international businesses desert London for major cities still inside the 28-nation bloc, according to Craig Kreeger, the UK carrier's American ceo.
Transatlantic flights, which account for 70pc of Virgin's total capacity, could see bookings slide as US firms favour locations such as Paris and Frankfurt, which it doesn't serve. "Most travel-intensive businesses - consulting, banking, technology - can make a pretty good argument that London right now is the centre of Europe," he said. "If Brexit has a risk that's easy to understand, it's the possibility that that centre would move east."