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Unexpected
Credit ratings agency upgrades Ireland, outlook now positive
Some good news for the economy this morning…
CREDIT RATINGS AGENCY Standard & Poor’s has revised its long-term outlook on Ireland to positive.
In an update this morning, the agency said that Ireland’s economic recover is underway.
“In our view, there is a more than one-in-three probability that Ireland could over-achieve its fiscal targets and reduce its government debt faster than we currently expect.”
It also pushed the long- and short-term foreign and local currency sovereign credit ratings to ‘BBB+/A-2′.
The rational behind the change of heart is said to be a belief that the government debt burden is likely to “decline more rapidly” than previously predicted, putting the success down to sustained budgetary consolidation, stabilising domestic demand and higher receipts from government asset sales.
The expectation of improving budgetary performance is based on implemented cuts to the public sector wage bill, reduced interest expenditure because of the prom note deal and recovery in tax receipts.
Praising Ireland, S&P said it has not deviated from its stated goal since entering the Troike bailout programme in 2010.
The ratings on NAMA were also revised to positive but there were some warning attached to both developments.
According to S&P, the country’s private sector’s access to funding is still “fragile” because of uncertainties related to global liquidity. It also noted the banks still have very high levels of non-performing loans.
In conclusion, the agency said:
We could raise our ratings on Ireland if its growth performance suggests that fiscal outturns will surpass our forecasts or that banks’ asset quality will materially improve.
On the other hand, if the Irish economy remains sluggish, asset prices depressed, and debt reduction slow–or if banks are unable to reach NPL reduction targets–the ratings are likely to stabilise at the current level.
Explainer: After the global financial crisis, why are rating agencies still trusted?
Read: How did ratings agencies become so powerful? Trains and recessions, that’s how
