Wednesday 25 April 2018

Budget 2016 will not 'overheat the Irish economy' say ratings agency Standard & Poor

Minister for Public Expenditure Brendan Howlin and Finance Minister Michael Noonan pose with Budget 2016 outside the Dail. Photo: Gerry Mooney
Minister for Public Expenditure Brendan Howlin and Finance Minister Michael Noonan pose with Budget 2016 outside the Dail. Photo: Gerry Mooney

Donal O’Donovan

Budget 2016 will not overheat the Irish economy, Standard & Poor's (S&P) said.

The last of the three main rating agencies said the preselection budget is “expansionary, as expected, but unlikely to derail fiscal Consolidation.”

Earlier this week, rival agency Moody's said the 2016 Budget signalled a “loosening of fiscal policy” but Ireland is on course to meet deficit targets.

A third agency, Fitch, warned that the Budget announced is pro-cyclical and therefore more likely to drive economic volatility, but said that on the whole the package would support deficit reduction.

In its post Budget assessment, S&P said Ireland's strong growth in the past few years has stemmed from the economy rebounding from a deep financial crisis, but the overall size of the economy will return to 2007 levels this year.

Moody's is the last of the big rating agencies not to regard Irish government debt as a high quality “A” rated investment.

Reacting to the Budget, Moody's said Ireland’s public finances are now improving at a very fast pace, which is credit positive.

It believes that given Ireland’s strong economic growth (we expect real GDP growth of around 4pc in 2016), the new target seems achievable and this year’s  budget deficit will likely be in line with the rating agency’s expectations at 2.1pc of GDP, and below the initially budgeted deficit of 2.3pc. Ireland’s public finances are now improving at a very fast pace, which is credit positive.

“However with that said, the budget signals a loosening of fiscal policy compared to previous years, with the government fully using the fiscal space that the domestic and European fiscal rules allow.”

Increased spending, including the supplementary increase to the 2015 Budget that have been announced by the Government is feasible without endangering the budget targets because tax - especially corporation tax – is likely to come in €2.3bn ahead of target, this year.

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