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S and P reaffirms Irish rating

Friday, December 20 10:55:22

Global ratings agency, Standard and Poor's, this morning reaffirmed Ireland's debt rating and kept its "positive" outlook, adding that there is a one in three chance it could raise its rating in the next 18 months.

It said it believes Ireland will continue to reduce its general government debt burden through budgetary consolidation and asset sales, as the domestic economy improves, allowing it to exit the EU/IMF program and maintain access to capital markets.

"We are therefore affirming our 'BBB+/A-2' long- and short-term foreign and local currency sovereign credit ratings on Ireland. The outlook remains positive, reflecting our view that there is a more than one-in-three probability that we could raise our long-term ratings on Ireland in the next 18 months," the agency said.

It noted that Ireland's domestic economy is stabilizing. Unemployment has started to decline while private sector employment numbers are improving. The seasonally adjusted standardized unemployment rate declined to 12.5pc in November 2013, from a peak of 15.1pc in early 2012. House prices have been recovering since mid-2013, including a significant rise in Dublin and stabilization in the rest of the country.

"We expect that improving business and consumer confidence will spur economic growth to close to or slightly above 2pc, which we see as Ireland's sustainable trend growth rate. This rate is buoyed by Ireland's favorable demographics, its openness, and its labor and product market flexibility. Because Irish exports exceed 100pc of GDP, we anticipate the economy will remain sensitive to demand from key trading partners: the U.K., U.S., and Europe," it said.

"Lower-than-previously-expected GDP growth in 2013 appears to reflect shrinking production in the high-valued-added pharmaceutical sector, due to major patent expirations. Nevertheless, services export growth has remained firm, and foreign investment inflows into the tradables sector remain significant."

"We base our expectation of improving budgetary performance on prospects for a sustained recovery of the domestic economy, as well as Ireland's track record of adhering to its stated fiscal goals since the EU/IMF program began in 2010. For 2013, we expect general government deficits to be below the 7.5pc of GDP target, reflecting both tight expenditure control and, to a lesser extent, out-performance of tax receipts. We expect that a steady recovery in tax receipts, as domestic demand recovers, will offset any additional expenditure pressures. In short, we think the 2014 budget is consistent with the government's fiscal targets, though some upward pressure on public sector wages could emerge from 2015 onward."