Ireland’s Stable Outlook Reflects Fiscal Consolidation and Economic Recovery

Fitch Ratings has revised the outlooks on Ireland’s ratings to stable from negative. At the same time, the agency has affirmed the long-term foreign and local currency issuer default ratings (IDRs) at BBB+. Ireland’s country ceiling has been affirmed at AAA and short-term foreign currency IDR at F2.

The ratings of guaranteed issuance by National Asset Management (NAMA) have also been affirmed at BBB+ and F2, in line with the sovereign ratings.

The affirmation and revision of the outlooks to stable from negative reflects Ireland’s continued progress with its fiscal consolidation, external adjustment and economic recovery, as well as the sovereign’s improved financing options. Fitch judges that the risks surrounding the adjustment path have narrowed and become more balanced, reflecting the following factors.

Fiscal consolidation remains on track, broadly in line with the original trajectory of the EU-International Monetary Fund (IMF) programme, which envisaged a 120% debt/gross domestic product (GDP) ratio in 2012, peaking in 2013-14 before declining. So far, Ireland has met all the quarterly fiscal targets of the programme. Fitch expects the 2012 deficit to be close to the target of 8.6% of GDP, implying a primary deficit of 4.5%, despite some expenditure overruns. More fundamentally, fiscal policy has so far successfully managed to meet the fiscal targets without excessive adverse impact on economic growth in 2011-2012. Nevertheless, significant further adjustment is needed to bring the deficit below 3% by 2015 as required under the EU-IMF programme and the Excessive Deficit Procedure.

A strong improvement in competitiveness is supporting a substantial contribution of net exports to GDP growth and a further improvement in Ireland’s current account surplus, which Fitch forecasts at 2.4% of GDP in 2012.

Although Fitch forecasts GDP growth at 0% in 2012, down from 1.4% in 2011, this would still be better than the eurozone average, which Fitch forecasts at -0.5%, and significantly better than other so-called peripheral eurozone countries, highlighting Ireland’s progress towards returning to economic growth.

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