Economy in Republic strong but hard Brexit a risk: Moody's
Strong economic growth and a "robust" fiscal position have put Ireland's economy and finances in a position of strength although the possibility of a hard Brexit presents a risk, credit rating agency Moody's said in a report.
"Brexit remains the single-largest risk for the Irish economy over the medium term," the report said.
"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 11% of Irish exports in 2018 and the deep integration of supply chains between the two countries, a return to WTO (World Trade Organization) rules under a no-deal Brexit would have a highly negative impact on the Irish economy," Moody's said.
It noted that Ireland's finances were strong and said that with a continued rapid rise in tax revenues and expenditure slightly below expectations, the Irish Government was on track to meet its targets for a budget surplus of 0.2% 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 120% of GDP in 2013 to 63.6% in 2018," Moody's said.
Nonetheless, the government's heavy dependence on company tax receipts represents a potential risk to Ireland's finances, especially as global tax reform looms.
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"In particular, strong revenue gains have been largely driven by above-expectations corporate tax receipts, which have increased from less than 10% of total revenue in 2014 to 17.2% 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 0.5%-1.5% of GDP in 2020.
Moody's rates Ireland's sovereign debt as A2 with a stable outlook, saying robust economic growth and prudent policy should yield a further reduction in public debt.