The Irish Economy Faces Challenges Regardless of Brexit Outcome

DBRS has today released a commentary: The Irish Economy Faces Challenges Regardless of Brexit Outcome. Given the looming March 29 Brexit deadline, most attention is understandably being paid to how Ireland would manage the severe consequences of the UK exiting the union without a transition agreement. A no-deal Brexit is clearly the most painful outcome for the Irish economy. However, a benign Brexit outcome in which uncertainty associated with Brexit evaporated would not eliminate, and over time may even exacerbate, existing economic challenges.

Despite the benefits to the Irish economy since the referendum, including many companies shifting resources from the UK to Ireland, the threat of a no-deal Brexit may in part be starting to apply some convenient friction to the Irish economy. Concerns of economic overheating, given the supply constraints in labour and real estate markets, could be exacerbated over the medium-term if the Brexit-related uncertainty that has loomed over Ireland were to evaporate following a benign outcome.

How Ireland manages Brexit – in all its forms, or even in its absence – will be important for assessing Irish credit fundamentals. DBRS’s future assessments of Ireland’s credit quality will consider how effectively authorities use fiscal and macroprudential policy tools to manage the eventual Brexit outcome. DBRS states in its rating sensitivities that upward rating pressure could be warranted, if the Irish economy can demonstrate clear evidence of enhanced resiliency to external developments, including Brexit. Conversely, the removal of Brexit uncertainty that results in the return of economic imbalances comparable to historical episodes would weigh on Ireland’s credit quality.

The commentary on “The Irish Economy Faces Challenges Regardless of Brexit Outcome” is available at www.dbrs.com.

For more information on the Republic of Ireland, visit www.dbrs.com or contact us at info@dbrs.com.