Moody's warns on trade despite 'robust' growth
Fast growth and a "robust" fiscal standing have put Ireland's economy and finances in a position of strength, although the growing risks of a hard Brexit and the prospect of more trade tensions present a threat to the State's outlook, credit ratings agency Moody's has said.
"Brexit remains the single-largest risk for the Irish economy over the medium term," its report said.
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"The risk of a no-deal Brexit has increased following the election of Boris Johnson as UK prime minister in July 2019. Given that the UK received 11pc of Irish exports in 2018 and the deep integration of supply chains between the two countries, a return to World Trade Organisation rules under a no-deal Brexit would have a highly negative impact on the Irish economy," Moody's said.
The ratings agency noted that Ireland's finances were strong, and said that with a continued rapid rise in tax revenues, combined with expenditure that was slightly below expectations, the Government was on track to meet its target for a budget surplus of 0.2pc of gross domestic product.
"This will, in turn, enable the Government to maintain the deleveraging trend seen in the past years, with general Government debt having declined from a peak 120pc of GDP in 2013 to 63.6pc in 2018," Moody's said.
Nonetheless, the heavy dependence of the Government on company tax receipts does represent a potential risk to State finances, especially as global tax reforms loom.
"In particular, strong revenue gains have been largely driven by above-expectations corporate tax receipts, which have increased from less than 10pc of total revenue in 2014 to 17.2pc in 2018, having benefited from the increased presence of multinational corporations. On the other hand, health-related expenditure has consistently exceeded budgeted spending," Moody's noted.
"This suggests that volatility in corporate tax receipts could pose a risk to public finances."
Moody's said that based on Exchequer calculations, a disorderly Brexit could cause the budget deficit to widen to between 0.5pc and 1.5pc of GDP in 2020.
Ireland's sovereign debt is rated A2 by Moody's, with a stable outlook that is underwritten by continued robust economic growth and a prudent policy framework, which it said should yield a further reduction in public debt.