Standard & Poor’s has upgraded its outlook on Ireland’s credit rating today, saying its debt may fall faster than expected.
While the move is not an upgrade, it is a positive development in how the rating agency perceives Ireland’s ability to manage its finances and service the debt burden.
The upgrade to positive from stable on Ireland’s BBB+ rating comes ahead of a planned exit from its EU/IMF bailout by the end of the year and comes amid political turmoil in Portugal and Greece.
The upgrade will also fuel expectations that Moody’s, the only major agency that rates Irish debt as non-investment grade, could at least take the country off negative watch in the coming months.
“The outlook revision reflects our view that Ireland’s general government debt burden is likely to decline more rapidly, as a percentage of GDP, than we had previously expected,” S&P said in a statement.
“Ireland’s economic recovery is under way,” it added.
S&P said it saw a more than one-in-three probability it would raise Ireland’s credit rating during the next two years, citing expectations that national debt will fall from 122% of GDP in 2013 to 112% by 2016.
It also praised the “strong consensus” among the country’s political parties for fiscal consolidation and reform.
The National Treasury Management Agency welcomed the change, which a spokesperson said acknowledged “the continued progress Ireland is making on the fiscal side and the improved access to capital markets.”
Speaking on Morning Ireland Philip O’Sullivan, chief economist at NCB Stockbrokers, said that the upward revision will bring the country’s bond yields lower.
“When you look at some of the cliff-hangers we have had in the rest of the periphery, Ireland has kept its head down and got on with it and I think that has been recognised,” he said.
“What S&P has done today illustrates the widening gap between the Moody’s stance and how many others on the market view the country. We see a Moody’s upgrade as a question of when, not if,” he added.
Also commenting on the revision, Owen Callan – senior analyst at Danske Bank Markets – said a move by Moody’s would be much more significant in terms of market impact and today’s decision will increase the pressure on Moody’s going forward.
”However, we note that the S&P report itself is in fact even more bullish than the headline decision. S&P states that Ireland’s potential growth rate is greater than 2%, and seems to suggest that even in a “bad” outcome there would be no downgrade,” he added.
Portugal’s president threw the bailed-out euro zone country into disarray yesterday by rejecting plans to heal a government rift and calling for early elections next year.
Fellow aid recipient Greece is in its sixth year of recession in a row with unemployment at record highs, while its lenders extend financing in instalments to keep pressure on the shaky coalition government for reforms.
Recent CSO data showed Ireland had unexpectedly fell into recession for the first time in four years. But S&P said that while external demand remains weak, the domestic economy is showing signs of stabilising with unemployment declining and house prices showing signs of bottoming out.
The country’s ”flexible, open economy” and ”favourable demographics” means it has the potential to grow by 2% a year, it said.
Standard & Poor’s had Ireland on negative outlook until February, when the Government struck a long-awaited deal with the European Central Bank allowing it to convert promissory notes into long-term bonds. That effectively gave it far longer to repay debts it ran up as it rescued the domestic banking system.