The strong Irish growth performance was confirmed in Q1 and forward looking indicators suggest that activity remained strong during Q2. This implies we expect GDP growth to be 4% in 2014, which will be the strongest rate since 2007.
The economic progress has followed as Ireland has made significant structural adjustments, which should imply it will be able to continue on a more sustainable growth trajectory going forward.
The improved macro economic situation has also resulted in a stabilisation in the debt ratio. The forecast is for a declining trend, but the improved fiscal situation could result in a faster decline than currently anticipated.
The better economic situation should also continue to support credit rating upgrades, which in turn will lead to lower sovereign yields. In that way, it should result in a virtuous cycle where debt declines further.
On Friday, Fitch has Ireland up for review and we expect the sovereign credit rating to be upgraded to single-A rating.
Another single-A rating (in addition to S&P) would, in our view, have a positive impact on the Irish market. This should follow as it should result in more investors being able to buy Irish government debt.
The other four periphery countries are also considered and even though some of them still have increasing GDP ratios, they have started to benefit from credit rating upgrades.
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