The Irish budget may be overly reliant on volatile revenue sources and there has been a failure to restructure public spending, ratings agency Standard &Poor’s has warned.
In a generally upbeat assessment of the economy published on Friday, the ratings agency warns that wage pressures and continued overspending in health is likely to damage the ability of the Government to increase capital spending, while staying within EU budget rules.
It says it also expects that the formation of a minority government “may divert some more important spending to local projects that have lower economic priority,” to secure support from Independent TDs. There has also been a failure to reform health and social spending, S&P warns.
S&P says that the Irish economy is set to continue to grow strongly, with unemployment falling back to pre-crisis levels and the public finances on an improving trend. It reaffirmed its " A°+/A-1" rating for Ireland, saying it expected the new Government to continue to cut borrowing and for the national debt to fall below 80 per cent of GDP by next year, a year ahead of its previous forecasts. The debt ratio recently fell below 100 per cent.
Brexit threat
The agency expects growth to remain strong, but to start slowing towards 3 per cent per annum over the coming years, as the economy approaches full capacity. By the end of this year net migration - the numbers emigrating versus the numbers arriving here - should be roughly in balance, it says. Wage levels can continue to grow without hurting competitiveness, S &P says.
Like most forecasters, S&P believe that a British exit from the EU - which they do not expect to happen - would have a negative impact on Ireland but of “ uncertain magnitude.” A weakening of the British financial services sector in the event of Brexit could also affect Ireland, they warn, and uncertainties would damage trade and investment.The possible relocation of some UK businesses to Ireland would be unlikely to offset the negative impact, the agency says.
