Ratings agencies see Ireland weathering Brexit, trade and tax storms

The Irish economy should comfortably withstand a lingering Brexit, international trade, and other macroeconomic challenges this year, according to two global credit ratings agencies.

German agency Scope has stuck with its A+ credit rating for Ireland, but has improved its Irish long-term prognosis from ‘stable’ to ‘positive’.

Moody’s sees Irish growth slowing this year but remaining far above the eurozone average for economic improvement.

However, it warned that the country remains exposed to “an unusually high degree of volatility” from the integration of multinational firms.

Moody’s said it expects Irish GDP to grow by 3.2% this year — significantly down on the projected 5.2% growth level Ireland is expected to have achieved in 2019, but still well above the forecast eurozone average of 1.4% growth.

It said competitiveness gains and export and productivity growth should continue to support the economy. However, uncertainty about the UK’s future relationship with the EU will persist this year and Brexit will remain the largest single risk to Ireland’s economic wellbeing for the next few years, it said.

Changing global tax rules, a global trade slowdown, and an overheating domestic economy also remain as challenges.

It said the Brexit risk will only pose a “modest impact” on the domestic banks, but bank profitability is likely to decline due to a high reliance on net interest income, a high exposure to low-margin mortgages, and losses from problem loan sales.

The reduction of government and bank debt has led to Scope’s improved outlook on Ireland, but it said high public and private debt levels are “rating constraints”.

That said, it is more bullish than Moody’s on the Irish economy, anticipating growth of 4%-5% this year.

“External risks that could stress the Irish economy and the Irish banking system have somewhat eased of recent,” said Scope analyst Dennis Shen.

He said market volatility could resume depending on how far apart the UK and EU are at the end of this year.

“However, in the absence of a no-deal Brexit — a scenario Scope considers unlikely — the UK exiting the EU smoothly… could give a near-term boost to Ireland’s economy via sentiment and trading channels,” he said.

PwC, meanwhile, said many uncertainties will persist in the economy this year.

“Ireland is bucking some global economic trends — our economy is performing well, one of the fastest growing eurozone economies; unemployment is at a 13-year low; and foreign direct investment remains strong. However, as a small open economy dependent on the performance of our global trading partners, business growth in Ireland is likely to remain uncertain for 2020,” warned PwC Ireland managing partner Feargal O’Rourke.

“The internal challenges facing Irish companies are similar to these global trends. Here in Ireland we must continue to prepare for all Brexit eventualities, for the next year, good and bad. And the availability of key skills, cyber threats, and climate change are top of mind,” he said.

“Continuing to think beyond the challenges and invest in these important areas to ensure business models are fit for a digitally enabled sustainable future will be critical.”