Ireland stands to gain more foreign direct investment (FDI) as a result of Brexit, and the public finances here have been on a continuously improving trend that’s set to continue over the coming years, Moody’s says.
However, in its latest report on the Irish economy, the rating agency noted that a reduction in the level of government debt has slowed since 2015 while external threats from Brexit and US tax reform could knock the recovery here off course.
That came as news from the UK shows inflation there hit its highest level since September 2013 last month, tightening a squeeze on living costs that will hurt Irish exports and tourism.
The combination of a weaker pound and rising costs means British real incomes are expected to fall this year, Investec chief economist Philip O’Sullivan said.
It’s bad news for Irish sectors most exposed to UK consumer spending, including tourism, he noted. It also heightens the risk UK retailers with Irish units will dump stock onto the market here, to clear inventories before the squeeze in their home market worsens, he said.
Furniture prices were down 10pc in the latest consumer price data, he said.
Meanwhile, in its latest Irish update, Moody’s said high debt and the unusually open economy here means Ireland remains unusually vulnerable to outside shocks.
Brexit, and changes to the US tax system mark the major risks to the economy here, Moody’s said.
The agency is less worried about domestic risks, such as rising house prices, problems in the banks or a radical political change of course.
In its annual credit profile yesterday Moody’s left Ireland’s A3 debt rating unchanged. “Ireland’s economy and public finances have been on a continuously improving trend, which will likely continue over the coming years,” Moody’s said.
External risks now loom larger than domestic worries about the banks and house prices, it said.
“Ireland will likely draw some benefits in the form of stronger foreign direct investment as firms move operations away from the UK but overall we believe that the economic impact of Brexit will be negative for Ireland,” said Moody’s Kathrin Muehlbronner.
“In addition, the corporate tax reforms currently under discussion in the US could potentially be a further negative development.”
House prices are around 10pc below the levels prior to the ‘bubble’, and 30pc below the 2007 peak.
Borrowing is barely increasing, while households have continued to reduce debt.
“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.”
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