Monday 24 July 2017

Ireland's economy 'exposed to' US tax cuts, says Moody's

Traders work on the floor of the New York Stock Exchange (NYSE) Photo: Getty Images
Traders work on the floor of the New York Stock Exchange (NYSE) Photo: Getty Images
Colm Kelpie

Colm Kelpie

Moody's Investor Service has signalled that Ireland is particularly vulnerable to any proposed changes to corporate tax laws in the United States.

In a predominantly upbeat assessment of the Irish economy, the New York-based organisation also reiterated that while Ireland will be impacted more than other EU countries by Brexit, its effects will be "manageable overall".

It predicted the economy would grow strongly over the coming years, reflecting what it described as strong competitiveness gains since the crisis and the large and growing presence of multinational companies.

But, it also pointed out that the sheer scale of US multinational companies here leaves Ireland exposed to decisions made by President Trump around corporate tax law changes.

Just this week Mr Trump met with a dozen American manufacturers at the White House, pledging to slash regulations and cut corporate taxes, but warning them he would impose taxes on imports if they move production outside the country.

"Ireland is more exposed than most peers to potential shifts in global taxation rules, given that its low corporate tax regime has been instrumental in attracting many multinational companies to its territory," Moody's said, in its latest credit opinion report.

"Ireland's exposure is particularly large with regards to the United States, given than many of the Ireland-registered companies originate from the US and a change to US corporate tax laws seem likely."

Moodys Investor Service noted the distortions in Irish GDP - in which the economy grew by 26pc in 2015 thanks largely to the accounting activities of multinationals here - arguing that this complicates decisions around economic policy, particularly fiscal policy.

"A high degree of economic vulnerability requires larger financial and fiscal buffers to deal with negative shocks than would be needed for a more stable economy," Moody's said.

It also noted the impact Brexit will have on Ireland, although suggested the country would be able to shrug it off overall.

"Ireland might also be negatively affected due to the close linkages of the two countries' labour markets - with the UK effectively acting as a 'safety valve' in terms of increasing unemployment in Ireland - and Ireland's dependence on energy imports from the UK, which cover around 90pc of Ireland's energy imports."

It noted the fact that Ireland could benefit from foreign firms relocating here from the UK.

Moody's also rated Ireland's institutional strength as "very high".

It said this reflected the improvements in banking supervision and regulation since the crisis, both by Irish authorities and through the implementation of the single supervisory mechanism.

Fiscal strength was ranked as moderate due to the "still elevated debt burden", Moody's said.

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