Our borrowing costs drop as ratings agency raises outlook
IRELAND's borrowing costs fell sharply after a leading global ratings agency lifted its outlook for the country.
The ratings change is a major boost for the Government's plans to exit the bailout at the end of this year.
The vote of confidence in Ireland was in sharp contrast to Standard & Poor's downgrade of Italian government debt earlier in the week.
The rating agency said there was now a one-in-three chance that it could raise Ireland's main credit rating over the next two years.
After years of ratings downgrades, it would be the first upgrade for Ireland since 2001. A better rating is crucial for borrowing cheaply on the international markets.
Standard & Poor's (S&P) said it had raised its outlook for the country from stable to positive and heaped praise on Ireland, saying it had not deviated from its budgetary targets since the bailout in 2010.
"Ireland's economic recovery is under way," the agency said.
"Given still weak external demand and Ireland's exports exceeding 100pc of GDP, we expect growth to remain slow in 2013 and 2014.
"Nevertheless, Ireland's domestic economy is showing signs of stabilising. Unemployment has started to decline while private sector employment numbers are improving."
The Department of Finance and the National Treasury Management Agency (NTMA) hailed the move as reinforcing the positive reputation Ireland has earned with the markets.
"It is encouraging that Standard & Poor's acknowledges the continued progress Ireland is making on the fiscal side and the improved access to capital markets," an NTMA spokesman said.
The move contrasts with Moody's ratings agency, which dashed Ireland's hopes of an upgrade earlier this year when it reaffirmed its negative outlook.
S&P, which upgraded its outlook for Ireland in February also, said it expected our debt level to peak at 122pc of the value of the economy this year, before falling to 112pc by 2016.
It said it believed there was potential for Ireland to recover more rapidly if the eurozone economy picked up. And it also upgraded its outlook for the National Asset Management Agency (NAMA) from negative to positive.
But the agency also warned that risks remained, including the rising level of bad loans in the banks, particularly mortgage arrears.
Standard & Poor's predicted the banks would not return to profitability this year, and in some cases probably not until 2015.
It said that if the economy remained sluggish and banks were unable to deal with distressed loans, Ireland would not be upgraded.
The announcement follows criticism of the ratings agency yesterday from Italian Economy Minister Fabrizio Saccomanni for downgrading Italy's credit rating, saying it failed to take account of recent government measures to boost growth.
The Mediterranean country's rating was reduced from BBB+ to BBB due to weakening economic prospects and the country's impaired financial system, according to S&P.
Greece is also struggling to recover from the economic backlash as its public sector took to the streets in protest this week against further austerity measures that were put in place.