Irish economy ‘in best shape since 2001’ despite Brexit, US tax fears

The Republic's economy is on its strongest footing since the outset of the millennium, even though there are concerns about the impact of Brexit and US corporate tax reform, according to a senior National Treasury Management Agency (NTMA) executive.

"Ireland is probably in the best shape it has been in since about 2001, with few imbalances in the economy," NTMA's chief economist Rossa White said in a video posted on the agency's website on Tuesday, accompanying a presentation for investors in Irish debt.

However, he warned that the UK economy is “beginning to slow” and the “full impact of the stronger euro will be felt later this year”, while the “concentration of corporate tax receipts” among a small number of big US groups “could become a concern if the US economy was to catch a cold”.

The NTMA presentation also highlights the fact that Ireland faces a challenge from US tax reforms enacted days before Christmas.

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IDA Ireland said last week that the biggest overhaul of the US tax code in three decades, which cuts the US corporate rate to 21 per cent from 35 per cent and gives company owners new deductions on business income, will make the US a more attractive location for investment. Ireland has been among the top European countries for foreign direct investment this decade, particularly from US technology companies, including Google and Facebook.

Mr White said that Ireland is “still in a sweet spot for its debt dynamics”, as the interest rate on Government debt has fallen below 3 per cent for the first time and that fact that the economy is growing at a faster rate.

The economist said that the interest rate will fall further as a lot of high-cost bonds are due to be refinanced in the next few years. The NTMA faces €24.2 billion of debt refinancing between 2018 and 2019, with a further €18.5 billion of bonds due to mature in 2020.

Ireland’s debt had fallen to 70 per cent of the size of the economy last year from a peak of 123 per cent in 2013 – to come in below the 88 per cent average for the wider euro zone.

However, this has been driven by often-distorted economic growth data. Debt to government income stands at 269 per cent, ranking behind Greece, Portugal, Italy and Cyprus and compared to the euro-area average of 193 per cent.

Ireland’s interest costs on debt accounts for 7.8 per cent of government revenues, compared to 4.8 per cent for the wider euro zone.