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Ratings agency highlights the Brexit and tax reform risks to Irish growth

Ratings agency Moody’s forecasts Ireland’’s GDP to slow to 3.3% in 2020 and 3.0% in 2021 and said Brexit remains the largest single risk to our economic outlook.

Moody’s Investors Service published its annual sovereign report for the Government of Ireland. The research report does not constitute a rating action but elaborates on Ireland’s credit profile in terms of economic strength, institutions and governance strength, fiscal strength and susceptibility to event risk.

The report’s author Sarah Carlson said the credit profile of Ireland (A2 stable) reflects the country’’s open, flexible and wealthy economy that has staged an impressive recovery over the past few years.

"The public finances have improved rapidly alongside the economic recovery – the headline public debt ratio nearly halved between 2012 and 2018," the report states.

Moody's also make reference to Ireland’’s "heavily distorted" GDP figures due to the large size of the foreign corporation sector in Ireland. "Real GDP growth has been extremely volatile over the past five years, driven by large swings in investment and net exports," the report states but notes the CSO has developed a number of alternative metrics to better measure domestic activity.

On risks to the economy, the report notes that clarity on post-Brexit trading arrangements would remove a key source of uncertainty and increase positive credit pressures.

"Ireland is also exposed to shifts in global taxation rules, and to a slowdown in global trade," the report states.

Despite the risks, Moody's said the Irish economy will continue to outperform most of its European partners.

"We forecast real GDP growth to slow to 3.3% in 2020 and 3.0% in 2021."

"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."

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