State credit rating stable as Moody’s sees 2021 rebound

The dramatic rise in the Government deficit this year does not make it more likely that Ireland will default on the national debt, according to analysts at Moody’s.

The ratings agency has kept its stable A2 credit grade for Ireland, citing strong growth prospects once the Covid-19 threat is contained.

“Our credit view of Ireland reflects the strong growth and fiscal track record of the past few years and our expectation that the positive trends will resume after the economic shock triggered by the coronavirus outbreak has faded,” the New York-based agency said.

It thinks the deficit will rise this year to 9.1pc of gross domestic product (GDP) because of pandemic supports costing €20.5bn. But it expects that spending gap to fall to 4pc of GDP next year as economic output strongly rebounds.

Sarah Carlson, Moody’s lead sovereign analyst for Ireland, said a 2020 recession is unavoidable.

The latest forecast from the Department of Finance is for a deficit of 7.5pc of GDP, although that predates recent spending measures. Minister for Finance Paschal Donohoe has said the deficit could hit €30bn.

Moody’s expects the economy to grow by 6.3pc in 2021. National debt should peak this year at 68.1pc of GDP and fall next year to 67.1pc, it said.

Moody’s has kept Ireland at A2 since 2017.

That is five notches below its top grade of Aaa, which is held by a dozen countries including the US and Germany. The UK is one notch above Ireland on A1 but is at risk of a downgrade due to Brexit.

Moody’s says Ireland’s credit worthiness is unlikely to be upgraded in the short term given pandemic-driven instability. Any upgrade would require, it said, “a material reduction in the public debt ratio” and “a reduction of revenue concentration risk” – a reference to Ireland’s high tax take from a handful of tech multinationals.

Ireland could face a downgrade, it warned, if the Government overspent and put the country into deeper debt than currently envisaged. Any ratings downgrade would increase the cost of State borrowing.

Although not anticipated, a material adverse impact of the coronavirus outbreak, Brexit or global corporate tax reform on Ireland’s growth performance over a multi-year period would also be rating negative,” it said.

The report credited the Government’s wage subsidies and strong exports by multinationals here with cushioning the blow from Covid-19.

“The resilience of key sectors such as pharmaceuticals and information and technology will mitigate the impact of the shock on GDP data,” it said.

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