Ireland ‘resilient’ enough to cope with cost of Covid-19, says Moody’s

The Republic’s credit profile is “resilient” enough to withstand the cost of Covid-19, according to global ratings agency Moody’s as it predicted the economy could contract this year by as little as 1.6 per cent.

The agency, which had previously predicted economic growth of 3.3 per cent of gross domestic product (GDP), said the State’s A2-rated borrowing capacity should hold up as long as the crisis is relatively short-lived.

In a note to bond investors, Moody’s highlighted that Ireland had so far announced €6.7 billion worth of measures to fight the economic impact of Covid-19, including wage subsidies and illness payments.

"The fiscal measures will help cushion the economic impact of the near-lockdown situation and the slowdown in global growth," said Sarah Carlson, its lead analyst for Ireland.

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“Provided that the crisis remains relatively short-lived and growth resumes towards the second half of the year, Ireland’s credit profile should remain relatively resilient to a temporary deterioration in its fiscal and debt metrics.”

International slowdown

The note warned that although the measures announced by the Government will help to reduce some of the economic damage and spur a bounceback, the Republic is still exposed to the international slowdown, particularly in terms of the its reliance on the UK and the United States for investment and to buy Irish exports.

Moody’s also predicted that the impact here would be cushioned by the tech- and drug-heavy nature of much the multinational investment in the Republic.

“We now forecast real GDP to contract 1.6 per cent in 2020, compared with growth of 3.3 per cent previously. Ireland’s industrial mix – particularly the importance of IT and pharmaceuticals – could counterbalance some but not all of the remaining economic disruption.”

Most observers tend to use a form of gross national income and not GDP to measure the Irish economy, as it strips out distortion by multinationals.

Moody’s said the return to a fiscal deficit and the extraordinary spending associated with Covid-19 would “temporarily” halt the State’s attempts to bring down its enormous €215 billion debt burden.

Moody’s believes the State’s deleveraging will resume in 2021. It also predicted that the Government would dip into cash reserves to fund some of the measures and would not have to borrow to pay for all of them.

The agency’s relatively benign assessment of the Covid-19 impact on the State’s finances contrasts with other, gloomier forecasts this week. Financial services firm EY predicted that the economy could shrink by between 7 per cent and 13 per cent this year.