Ratings agency Fitch has upgraded its view on Irish sovereign debt to A-, citing improved trends in the economy and reduced "vulnerabilities" in the banking sector.
In a pre-budget boost for the Government, the agency delivered its assessment last night, raising its rating from BBB+. It said its outlook for the rating was stable, meaning it does not see significant economic clouds on the horizon.
The views of international ratings agencies such as Fitch are important for countries when they want to raise funds in international markets as more positive ratings mean lower debt costs. Fitch is the second of the three major agencies – Fitch, Moody’s and Standard & Poor’s – to restore an A-grade to the economy, with Standard & Poor’s doing so in June.
Minister for Finance Michael Noonan, Tánaiste Joan Burton, and the National Treasury Management Agency, which manages the State's debt, all last night welcomed the Fitch announcement.
The upgrade came after Ireland’s borrowing costs hit a new record low yesterday, with yields on 10-year bonds falling below 2 per cent for the first time, putting the State’s borrowing costs below that of the US and UK, as yields fell across the euro zone on developments in Ukraine.
Yields on Irish debt have fallen steadily since mid-2011, at the height of the euro zone debt crisis, when 10-year yields topped 14 per cent.
“Ireland has retained many of its structural strengths throughout the crisis. It is a wealthy, flexible economy,” Fitch said in its latest assessment.
Momentum
The agency said the “employment-led recovery” of the economy gained momentum in the first three months of this year, with “positive spill-over effects for heavily-indebted households, the housing market and public finances”.
It noted that vulnerabilities in the banking sector had declined.Fitch expects the economy to grow by 2.2 per cent in GDP terms this year and by 2 per cent in each of the coming two years. This compares to the Government’s forecast of 2.1 per cent growth for 2014 with a rise to 3 per cent by 2016.
“The composition of growth will become more balanced as domestic demand turns positive driven by private consumption and investment,” Fitch said.
Mr Noonan said the Fitch upgrade reflected “the significant progress” that had been made in repairing the economy.
“Ireland is now rated at A grade by two of the three main rating agencies, our international reputation continues to improve and the NTMA continues to do an excellent job in securing stable and low cost funding for the State. This upgrade will further support their funding plans and will have a positive impact across the economy, “ he said.
The National Treasury Management Agency's chief executive, John Corrigan, was equally upbeat, saying the upgrade underpinned "the already strong investor sentiment towards Ireland". Ms Burton said the upgrade was "positive and welcome".
