Monday 26 February 2018

S&P cuts EU rating but it keeps Ireland at BBB+

Spanish Minister of Economy Luis de Guindos (L) chats with Irish Finance Minister Michael Noonan (C) at the start of a EU Finance Ministers council in Brussels
Spanish Minister of Economy Luis de Guindos (L) chats with Irish Finance Minister Michael Noonan (C) at the start of a EU Finance Ministers council in Brussels
Colm Kelpie

Colm Kelpie

GLOBAL ratings agency Standard & Poor's has cut the EU's long-term rating, citing concerns about how the bloc's budget was financed.

But officials in Brussels dismissed the move, saying S&P had recently downgraded the Netherlands and has lowered its view on six other member states, France, Italy, Spain, Malta, Slovenia and Cyprus, in the past year.

By contrast, the agency reaffirmed its credit rating for Ireland and said the outlook remained positive.

And it reiterated its view that there was more than a one in three probability that it could raise its long-term ratings on Ireland in the next 18 months.

But Moodys, which has Ireland at junk status, downgraded AIB's deposit rating late on Thursday night and altered its outlook for the bailed out bank to stable. It also reviewed several mortgage-covered bond ratings for downgrade.

Merrion Capital's Ciaran Callaghan said the move wasn't a surprise as it follows similar actions to Bank of Ireland.

S&P said growth next year would be 1.5pc -- slower than the 2pc forecast by the Department of Finance. That forecast also puts it at odds with the bullish assessments from the Econ-omic and Social Research Institute (ESRI) earlier this week of 2.7pc growth and business body IBEC, which forecast 2.8pc.

It shows that some of the international observers are not as confident about growth levels as the domestic analysts. And it reinforces the fact that economic projections are an inexact science.

The International Monetary Fund said this week that the economy would grow 1.7pc next year. Despite this, however, S&P said Ireland will still come well within the target of reducing the budget deficit to below 3pc of GDP by 2015 and gave an upbeat assessment of Ireland's prospects.

The ratings agency, which reaffirmed Ireland's BBB+/A-2 long- and short-term foreign and local currency sovereign credit ratings, said it believes Ireland will continue to reduce its general government debt through a combination of austerity and asset sales.

S&P said the economy was stabilising and that unemployment was starting to decline while private sector employment numbers are improving.

It said it would raise the rating on Ireland if growth exceeds the "relatively cautious" projection of slightly more than 2pc on average GDP growth from 2015.

An upgrade would also come if the government debt reduces at a faster pace than expected and banks' asset quality improves.

But the agency defended its downgrading of the EU, saying cohesion had weakened and some countries might baulk at funding their contributions to the budget in the years ahead.

The budget is financed by contributions from all member states based on gross domestic product.

Irish Independent

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