Friday 23 February 2018

Bond markets will see that Ireland is not Greece - S&P

Thomas Molloy

RATING agency Standard & Poor's has said it views the country's economic future very differently to the financial markets and predicted the markets may soon distinguish between Ireland's investment grade credit rating and Greece's junk rating.

"Ireland is different," S&P credit analyst Trevor Cullinan said in a presentation in Dublin, adding that he expects that Ireland will meet its fiscal targets while Greece "struggles".

The Greek situation could "potentially" have implications for Ireland, though the country has two years before it needs to return to bond markets, he said.

Investors may distinguish between the two countries by 2013 when the State is set to return to the bond markets to raise money, said Mr Cullinan. "We see them very differently."

He said the riots in Athens and differences between the political parties there made it difficult for the government to extract savings.

The ratings agency analyst noted that the recent Irish bank stress tests have "drawn a line in the sand" on the "creeping costs" of bailing out the country's financial system, he added.

The country's banks are unlikely to need "substantial" additional capital beyond the €24bn four lenders were ordered to raise in March. "Experts have been through the banks with a fine-toothed comb," Mr Cullinan said at the event hosted by the Foundation for Fiscal Studies in Ireland

The consensus in Ireland made it more likely that Ireland would reach its targets, he said. Exchequer figures published for the first four months of the year also suggest that Ireland is "on track", he added.

"The story needs to be told," he added in an apparent reference to the government's inability to persuade investors that default is not inevitable.

S&P cut Ireland's credit rating one level to BBB+ in April following the announcement of the stress tests. That leaves bonds above junk level and on a par with countries such as Poland, Cyprus, Bulgaria, Lithuania and Hungary. The same agency now lists Greek bonds as junk.

Ireland's rating could be raised if growth averages 3pc over the next few years, in line with government forecasts. S&P sees growth averaging around 2.5pc. Our rating could be lowered if the banks produce further surprises although Mr Cullinan said he did not expect that to happen.

House prices will continue to decline until 2012, he forecast.

"Still, the adjustment has been substantial and that gives us some comfort that we are near the bottom."

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