Fitch: Debt slowing upturn

Credit ratings agency Fitch Ratings yesterday sketched contrasting outlooks, predicting strong economic growth for Ireland, in the short term at least, but contrasting with an uninspiring picture for the rest of the eurozone.

Gergely Kiss, director of sovereign ratings at Fitch, said that just looking at the growth numbers shows Ireland is tapping the huge expansionary environment being shaped by the ECB’s quantitative easing programme, the drop in the euro that is providing a boon to Irish exporters, and the economic growth in this country’s big trading partners, the US and the UK.

“It is clear” that that the Irish economy is growing more strongly at this stage than the rest of the eurozone, which underpins Fitch’s forecasts that GDP here will expand by 4.3% this year and 2.4% in 2016, Mr Kiss told the Irish Examiner.

However, in the longer term, he said Fitch remains “conservative” about growth here because history suggests economies carrying large debt loads will be held back.

Fitch sees Ireland’s gross debt level only falling below 100% of GDP by 2018, but that forecast excludes any receipts the Government may receive from privatisations such as the sale of the State’s potentially valuable shareholdings in the banks.

Overall, the picture in the eurozone as a whole is less inspiring. In its report published yesterday, Fitch says the eurozone recovery is underway but the legacy of the debt crisis remains.

High debt and structural weaknesses will weigh on the recovery, and potential growth is weak compared with other major advanced economies.

Eurozone quarterly growth slowed in the second quarter of 2015 after 0.4% increases in the previous two quarters — the strongest readings since 2010, it said.

“Italy’s quarter-on-quarter growth rate fell to 0.2% from 0.3%, and Germany’s rose by just 0.1 percentage point to 0.4%,” Fitch said. It added that unemployment remains high at 11.1% and inflation low at 0.2%, while aggregate eurozone government debt had risen to 92.9% of GDP.

Finland last week was the only eurozone country to report that its economy contracted in the second quarter.

Earlier this month, Fitch raised the outlook on Ireland’s ‘A-‘ rating to ‘positive’ from ‘stable’, but left the main rating unchanged