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Moody's warns Brexit, Trump administration threaten Irish economy

Xinhua, March 3, 2017 Adjust font size:

Although Ireland's growth prospects remain strong, the country faces risks from the impact of the Britain's withdrawal from the European Union (Brexit) and the prospect of corporate tax reforms in the United States, ratings agency Moody's warned on Thursday.

In a research report, the agency said that 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 United States.

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.

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

Moody's said the scale of the second risk to the Irish economy is still unclear as details of any U.S. corporate tax rule changes have yet to be announced.

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

Multinationals originating from the U.S. account for around half of all foreign companies located in Ireland, implying that big changes in U.S. 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 U.S. which constitutes an additional risk for Ireland's FDI-focused economic model," Muehlbronner said. Endit