Fitch: Ireland is the ‘outlier’ but credit issues persist

The Irish and Spanish economies have pulled away from the group of countries in the eurozone periphery, but employment growth, bad loans and credit remain issues, according to a credit ratings firm Fitch Ratings.

Its major report on the Irish, Spanish, Portuguese, and Italian economies compares growth rates, costs, the health of the banks and bad loans since the depth of the eurozone crisis in 2010 and 2011.

Ireland and Spain have recovered rapidly, and opened up a huge gap with Italy and Portugal but Ireland — where the slump was deepest — is the clear “outlier” of the four countries in terms of super-charged growth, Fitch said.

Irish GDP dropped 12.3% between 2010 and 2015, compared with a fall of “only” 8.4% in Spain, and an average contraction of 5.3% in GDP across all eurozone countries.

Since the worst of the crisis, Irish GDP has grown by 20% — including last year’s surge of 7.8%.

In Spain, GDP has grown more than 5%, but the recovery “has been significantly weaker” elsewhere, with the Italian economy only growing 2% since the worst of its crisis.

Fitch said that exports have surged “significantly” in all four countries, but the “ultra-open Irish economy” which has more trading partners outside the eurozone has fared substantially better. Employment during the crisis dropped by between 15% and 20% in Spain, Portugal and in Ireland, but fell less dramatically in Italy.

Fitch, however, said that “employment has been relatively weak in all four countries” and “is still below its pre-crisis peak”.

It said despite pressure from national central banks and now the Single Supervisory Mechanism that lenders across all four countries have been slow to deal with non-performing or bad loans left on their books since the crash.

New loan transactions contracted through the end of last year in three of the four countries.

“It is only the Spanish corporate sector among the corporate and household sectors of the four countries in which credit transactions turned positive in 2015,” Fitch said.

“By contrast, at the eurozone level, household transactions remained positive throughout the crisis and corporate flows turned positive in mid-2014,” it said.