Boost for Ireland but fears grow for global economy
In a chilling sign of the gravity of the situation, the world's most powerful countries last night agreed to hold an emergency summit to discuss how to stop another global recession.
German Chancellor Angela Merkel spoke with US President Barack Obama last night as governments attempted to come to terms with a week of market devastation.
However, amidst the mayhem, S&P issued an upbeat verdict on Ireland's performance.
•Ireland's political stability and willingness to knuckle down are seen as key strengths.
•We are better placed than Spain, Portugal and Greece for economic recovery.
•Because our bailout repayments have been cut, it will be easier to go back to the bond markets.
S&P kept our government debt rating at BBB+, which maintains the crucial "investment grade" status favoured by lenders.
Meanwhile the S&P assessment bucks the trend by which it had cut the Irish rating by five notches over the last 12 months.
Crucially the agency said it thought the Government could now draw a line under the cost of bailing out Irish banks.
In the report, S&P analysts said: "We do not expect any further material costs to the Government of supporting the domestic banking system over and above the €64bn already injected."
It represents a turnaround as independent analysts have long feared that the cost of bank rescues could rise if more hidden losses were uncovered. But in this latest report there is a major change of emphasis.
"In our view, the Irish economy is prosperous and open, with flexible product and labour markets, although medium-term growth prospects are constrained by high levels of public and private debt," it says, adding: "The Government of Ireland has demonstrated the commitment and capacity to stabilise public finances."
The surprise good news is all the more notable because it comes at a time of increased pessimism about the European and global economies.
S&P is not the only convert to the Irish case. The price investors are paying to buy Irish government debt has risen sharply over the past week -- driving down borrowing costs.
The country is locked out of the money markets but Irish government debt still changes hands among investors in a secondary market. There has been strong demand for these bonds.
The trend was helped by the ECB buying bonds yesterday but started with private sector buyers placing a bet on an Irish recovery by buying Irish debt.
The price Ireland would pay to borrow in the markets is now under 10pc.
S&P said it thinks Ireland's cost of borrowing will fall much further -- to a manageable 6pc -- in time to return to the markets to refinance €12bn of government debt. If that turns out to be correct, it means we will not need a second bailout.
S&P said it was keeping Ireland in the higher tier of "investment grade" borrowers thanks to the "Government's commitment and capacity to stabilise public finances" and the rating agency's own expectation of modest, export-led growth in the economy.
"We believe that Ireland's creditworthiness is sustained by a strong political consensus in favour of fiscal consolidation," S&P said. It expects the economy here to grow by a third of a per cent this year.
The Government last night welcomed the news. A spokesman said: "S&P has acknowledged many of the positive features of the Irish economy, including flexibility and improvements in competitiveness."
However, the spokesman warned that significant challenges remained ahead for the Irish economy.