Ratings agency Fitch has revised the Irish economic outlook to stable.
At the same time it has affirmed our long-term foreign and local currency ratings at BBB+ and has reaffirmed the Irish ceiling at ‘AAA’.
It says the affirmation and revision reflects our “continued progress with…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.
The body claims that fiscal consolidation remains on track and broadly in line with the original trajectory of the EU-IMF programme.
This envisages a 120% debt/GDP ratio in 2012 and peaking in 2013-14 before declining.
The agency adds that “Ireland has met all the quarterly fiscal targets of the programme” and that they “expects the 2012 deficit to be close to the target of 8.6% of GDP”.
However it also cautions that significant further adjustment is needed to bring the deficit below 3% by 2015 as required under the EU-IMF programme.
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.
0% growth for 2012
Although Fitch forecasts GDP growth at 0% in 2012 it says 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.
It says Ireland has made significant further progress in returning to market financing issuing 5 and 8-year bonds in August and September at lower yields.
It cautions that the rating remains constrained and faces downside risks from its high public and private debt levels, persistent vulnerabilities in the financial sector and “its sensitivity to external demand and financial conditions”.
It adds that our prospects are sensitive to conditions in our main trading partners.
Its forecast of a resumption of an export-driven recovery from mid-2013 is based on the assumption that the recession in the Eurozone – our major trading partner – “proves to be shallow and short” followed by modest economic growth.
The agency expects GDP growth in Ireland to reach 2% from 2014 as the drag on domestic demand stemming from the private sector deleveraging fades.
While it says unemployment is expected to remain above 13% until 2014 declining only modestly from its current level of 15%.
