Moody’s: Irish GDP volatility a concern after 26% growth spurt

Credit rating agency Moody’s is concerned about dramatic fluctuations in Ireland’s economic growth rate, which soared to an eye-watering 26 percent last year after some assets of multinational companies were reclassified.
Moody’s raised Ireland’s credit rating to A3 in May after it posted better-than-expected 2015 gross domestic product growth of 7.8 percent — an estimate that was sharply upgraded by the Irish Central Statistics Office on Tuesday to 26.3 percent.
The revision reflected a reclassification of assets from firms redomiciling to Ireland to cut their tax bills and others moving intangibles onshore, and the leasing of aircraft in the major Irish hub.
“The very high volatility in Ireland’s growth performance remains one of our key credit concerns and implies that it requires fiscal and financial buffers that exceed the norm for more stable economies to maintain a similar rating level,” Moody’s said in a statement.
While growth remains reasonably strong and the government is likely to exceed its fiscal targets for the year, Moody’s said the upgrade was “heavily distorted by the transactions of a number of multinational entities, which have a limited impact on the domestic economy and the government’s repayment capacity.”
The dramatic revision cut Ireland’s debt to GDP ratio to below 80 percent from above 90 percent. Irish bond yields are already trading at record lows.
The country’s debt agency, the National Treasury Management Agency, said it had contacted investors over the last 24 hours to explain the GDP hike, but its head said it does not think it had damaged the credibility of Irish economic statistics.
“It’s not necessarily where you want to be but I wouldn’t get too excited about it from an investor point of view,” Conor O’Kelly told a news conference.
“We were in robust financial good health on Monday and we’re in robust financial good health today post the (GDP) number. It doesn’t change that,” he said.
Moody’s also voiced concerns about a shift to more pro-cyclical spending from the government after years of austerity under the country’s 2010-2013 bailout.
A return to economic growth has exposed shortcomings in Ireland’s infrastructure and public services, while Prime Minister Enda Kenny’s minority government is under pressure to increase spending to boost its support after a poor election.
“While we do not foresee a return to the strongly pro-cyclical fiscal policy that characterised Ireland pre-crisis, continued health care overspending indicates substantial underlying pressures that are not being addressed,” Moody’s said.
“There is a significant risk that fiscal policy becomes pro-cyclical.”

Source: Arab News