Belfast Telegraph

Republic's economy predicted to outdo its eurozone peers despite Brexit fears

Elected: Boris Johnson
Elected: Boris Johnson

By David Chance

The Irish economy is likely to outperform its eurozone peers despite the growing risk of a hard Brexit, credit ratings agency Moody's has said in a report.

The report came out as Germany, the eurozone's largest economy, was revealed to have slipped into recession in the second quarter of this year.

Moody's expects economic growth of 4% for the Republic of Ireland this year, dropping to 3% next year.

The agency also said that the factors driving growth will shift from exports to private domestic consumption and residential.

"Even as Irish growth slows gradually over the coming years, it will continue to outperform most of its euro area peers, supported by the high competitiveness and productivity of the multinational sector as well as favourable demographics," the agency said.

That compares with Central Bank of Ireland forecasts of 4.9% this year and 4.1% next year, although the bank warned that could fall to zero if there is a hard Brexit.

"The probability of a no-deal Brexit has increased following the election of Boris Johnson as UK Prime Minister," Moody's said. The report, in which the Republic's A2 stable credit rating remained unchanged, said that debt dynamics had improved thanks to a halving of the public debt ratio between 2012 and 2018 as a result of "the country's open, flexible and wealthy economy that has staged an impressive recovery over the past few years".

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"Moreover, economic prospects are strong on account of substantial competitiveness gains, as well as robust export and productivity growth," Moody's said.

"A further significant reduction in the public debt level could lead to an upgrade of the rating," it said.

Despite the positive overall picture for the economy in the Republic of Ireland, Moody's cut the State's economic strength score downwards from "very high".

That was as a result of the distortions in real and nominal gross domestic product numbers brought about by a limited number of transactions by multinational corporations resident in the Republic.

The report put the Republic of Ireland in a grouping with the Czech Republic, which has a higher credit rating at A1, and Italy, which is rated by Moody's as Baa3, the very bottom rung of the investment grade scale.

Those distortions feed through into the income per capita comparisons with the A2 credit rating peer group, as the Republic's GDP per capita in purchasing power parity terms was more than twice the average for A-rated sovereigns.

Slowing global trade and the prospect of big changes to the global tax system are the other big risks to the Republic aside from Brexit, Moody's said.

Belfast Telegraph