Moody’s: Brexit, Trump Threaten Irish Economy

People take part in a march against the outcome of the recent EU referendum, in London, Britain, July 2, 2016. Around 40,000 people attended the anti-Brexit march after a petition with 4 million signatures was submitted to the parliament, calling for a second referendum.

Although Ireland’s growth prospects remain strong, the country faces risks from the impact of the Britain’s withdrawal from the EU and the prospect of corporate tax reforms in the US, ratings agency Moody’s has warned….reports Asian Lite News

People take part in a march against the outcome of the recent EU referendum, in London

In a research report, the agency said Brexit will likely mean lower export growth, deeper disruption to well-established supply chains and the need to establish controls at the border with the Britain, its second-largest export market after the US.

It said higher foreign direct investment inflows could mitigate some of the negative impact, as Ireland will likely be a key beneficiary from the diversion of investment from the UK, Xinhua news agency reported.

However, Ireland faces important supply constraints, in particular in the area of housing and might not be able to realise its full FDI potential, the agency said.

Moody’s said the scale of the second risk to the Irish economy was still unclear as details of any US corporate tax rule changes have yet to be announced.

It said multinational companies were a crucial part of Ireland’s economic success and the country’s low corporate tax rate has been an important driver for foreign direct investment.

Multinationals originating from the US account for around half of all foreign companies located in Ireland, implying that big changes in US corporate tax rules could heavily affect Ireland, according to the agency.

In Moody’s view, new investment inflows into Ireland could be materially lower, while Ireland’s public finances would also be negatively affected.

“Ireland has been growing strongly since 2014 and we expect it to continue to do so in the coming years,” said Kathrin Muehlbronner, senior vice president of Moody’s Investors Service and author of the report.

“But the UK’s withdrawal from the EU could bring significant disruption to Ireland as the UK aims for a free trade agreement rather than participation in the single market.

“In addition, there is now the prospect of major corporate tax reforms in the US which constitutes an additional risk for Ireland’s FDI-focused economic model,” Muehlbronner said.