S&P Global Ratings hints at Irish upgrade if UK stays in EU

Disappointing some expectations, S&P Global Ratings — the new name for Standard & Poor’s — left its ratings unchanged for Ireland yesterday, citing the potential washback on the Irish economy should the UK decide to leave the EU in the referendum that takes place in less than three weeks.

In its latest rating review, S&P, however, dropped a large hint that it is minded to upgrade the country in the not too distant future should a number of risks, including that of the UK pulling out of the EU, not occur.

In leaving the rating at an A+, with a stable outlook, “balances our view of upside potential for the ratings if Ireland’s fiscal position continues to improve against risks associated with external factors such as a potential Brexit, or weaker global demand”.

S&P has long been among one of the most positive of the credit rating firms on Ireland’s prospects and, even at the depth of the banking crisis, kept the Irish rating within investment grade.

Its chief sovereign rating officer Moritz Kraemer, in an interview last month, told the Irish Examiner he assessed Ireland would in time weather any shock from disruption to trade across the Irish Sea should the UK vote for Brexit on June 23. Mr Kraemer is one of five members sitting on the S&P review team of Ireland.

Yesterday, S&P said the potential for Ireland to attract banking investments in the case of the UK exiting the EU would not “fully offset the overall negative impact” of a Brexit.

It reiterated projections for Ireland’s GDP growth to slow in time to about 3%, down from the 7.8% turbo-charged growth posted last year.

The generally upbeat assessment is likely to make fairly pleasant reading for the new minority Government too.

Less positively, it noted the “volatile” nature of the corporate tax receipts, and on expenditure, expressed concerns that public pay demands and “persistent” health budget overruns “are expected to squeeze out” better investments in capital projects.

Funding of local schemes, in return for TDs supporting the minority Government in the Dáil, will also lead to lower-quality spending, it said.

Wages growth overall, S&P believes, will not unduly dent Irish firms’ cost competitiveness. Despite the jobless rate having fallen to 7.8%, the high level of youth unemployment, at 15%, and the lack of retail price hikes signal “there is still some slack in the Irish economy”.

It said the level of non-performing loans — a fifth of all loans on the banks’ loan books — remains high. It also highlighted that borrowing costs for Irish firms is about 2 percentage points above the eurozone average.

S&P sees no sale of the Government’s stakes in AIB, Bank of Ireland and Permanent TSB anytime soon.

Meanwhile, a leading economists said yesterday that Irish employment may be approaching its peak and unemployment is unlikely to dip much below 6.5%.

Conall Mac Coille and David McNamara at Davy Stockbrokers said consumer spending levels were built on “solid foundations”, but that the jobless rate is unlikely to fall much further.

That’s because there is “a considerable mismatch” between the skills held by former construction workers who lost their jobs in the crash and the needs of a growing services-orientated economy.

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