S&P says budget will not derail recovery

Leading international credit ratings agency, Standard & Poor’s (S&P), has said the Government’s budgetary measures for next year, as set out last Tuesday, will not derail the country’s recovery, nor overheat the economy.

“The Irish Government’s pre-election budget is expansionary, as expected, but unlikely to derail fiscal consolidation,” S&P said in its post-budget report yesterday.

“We believe much of Ireland’s strong growth in the past few years has stemmed from the economy rebounding from a deep financial crisis.

“We only expect nominal GDP, in euro terms, to return to the 2007 pre-crisis peak this year,” it added.

The ratings agency said: “We do not expect the Government’s pre-election giveaways to derail its planned fiscal consolidation.

“The expansionary measures announced so far are within our current base case, and the extra spending on health should cover at least part of the recurrent overruns in the sector.”

S&P’s reaction follows that of rival agency, Fitch, which said on Thursday that Ireland’s budget deficit will continue to narrow, implying declining debt in the medium to longer term.

“We assume the next Irish Government will remain broadly compliant with the EU and national fiscal rules, and a primary surplus of 1%-2% of GDP will be maintained over the medium term,” Fitch said this week.

“This will remain an important driver of debt dynamics, as it is not clear how long Ireland will maintain the very high growth rates of this year,” it added.