- S&P has this morning revised its outlook on Ireland to positive. S&P kept the rating unchanged at BBB+, which is one notch above Italy (following the downgrade this week).
- The motivation behind the revision is that 'Ireland's general government debt burden is likely to decline more rapidly, as a percentage of GDP, than we had previously expected,' according to S&P.
- Ireland's National Treasury Management Agency (NTMA) has already conducted two syndicated bond issues this year, leaving the NTMA heavily pre-funded for the rest of this year and into 2014.
- Ireland is in the final stages of regaining full market access. While we do not expect Ireland to be in need of additional support, there are a number of backstops including the ECB's OMT, primary and secondary ESM support and retroactive direct bank recapitalisation. Ireland Also Outperforming On Rating
Ireland is now also ‘outperforming’ on the rating side. S&P has this morning revised its outlook on Ireland to positive. S&P kept the rating unchanged at BBB+, which is one notch above Italy (following the downgrade this week). S&P states that “Ireland’s general government debt burden is likely to decline more rapidly, as a percentage of GDP, than we had previously expected.” According to S&P, the net government debt is set to peak this year at 122% of GDP and decline to 112% of GDP by 2016. Since the start of the EU/IMF programme in 2010, Ireland has not deviated from its stated fiscal goals and based on the figures released so far this year it appears that Ireland once again will deliver a deficit below the programme limit of 7.5% of GDP (in the range 7.0-7.5%).
S&P also points to the “strong consensus among the country’s largest political parties for fiscal consolidation and policies aimed at economic flexibility”. On growth, S&P writes that “we expect growth to remain slow in 2013 and 2014. Nevertheless, Ireland’s domestic economy is showing signs of stabilizing... We believe there is upside potential for Ireland to recover more rapidly, should external demand recover. We are also of the opinion that Ireland’s potential growth rate is greater than 2%, benefiting from its favourable demographics, its openness, and its labour and product market flexibility”.
We expect today’s move to have a positive although limited impact on Irish bonds. Moody’s still has Ireland on ‘junk’ at Ba1 and negative outlook. Clearly, an upgrade from Moody’s would have a greater impact as this would imply that Ireland would have IG rating from all three major rating agencies. The timing of such a move is unclear. It could be that Moody’s will wait for the bank stress tests in Q1, but it is possible that regular monthly auctions and beating fiscal targets during H2 will be enough to push it to neutral.
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