The Irish Economy Has ‘Turned the Corner’

Moody’s Investors Service senior analyst Kristin Lindow has told the Wall Street Journal ‘that there is no doubt that Ireland’s economy has turned the corner and signaled that the rating firm is positive that the country will manage its huge debt levels in the coming years’.

Ireland exited its three-year bailout with the European Union and International Monetary Fund in December, and the Irish government cited Moody’s decision in January to lift its junk rating on Ireland’s government bonds as an important step in the country’s progress out of its long banking debt crisis. The government also said the sale of €1 billion ($1.38 billion) in 10-year debt in early March to investors at a yield of under 2.97% was evidence that investors had growing confidence that the country is emerging from its economic ills.

But hard evidence on Ireland’s recovery remains unclear. While official data last month had shown employment growing at the end of 2013 at the fastest pace since before the start of Ireland’s huge banking debt crisis in 2008, the Central Statistics Office this month reported the Irish economy had contracted sharply in the fourth quarter. It meant that after growing in both 2011 and 2012, the economy had contracted again in 2013, by 0.3%.

However, in an interview with The Wall Street Journal, Ms. Lindow said the much-improved employment numbers and other survey evidence meant that “the corner has turned on economic activity” and Moody’s projects the Irish economy will grow strongly this year. “GDP notwithstanding, all the indicators that matter as far as Ireland’s domestic economy is concerned reflect that upturn. And it is certainly not a jobless recovery,” she said.

Moody’s in January lifted Ireland’s government debt rating from junk to Baa 3, the lowest investment-grade rung, but with a positive outlook. Analysts say a decision on whether to increase its rating again at its next review on Ireland scheduled for May 16 will be closely watched.

Ms. Lindow said that because the Irish authorities hold a lot of cash, Ireland’s “position is substantially better” than its gross debt level of about 123% of gross domestic product suggests. A net debt position of about 100% of GDP helps make Ireland’s debts “affordable and manageable,” as the country recovers in the coming years, she said.

Ms. Lindow said that the outlook for Ireland and other peripheral euro-area nations had improved significantly. “We expect to see positive momentum. We are seeing positive momentum. That backdrop is important,” she said.

Following a property crash in 2008, Irish taxpayers were forced to inject huge sums to keep its banking system from collapse. A large part of the system remains nationalized, and the three surviving Irish lenders, along with other euro-area banks, face a full comprehensive review by the ECB this year that may require them to raise more capital.

The outcome of the stress test remains unknown, and while there may be no shortfall Moody’s banking analysts have in the past said there is possibility that the Irish government will have to inject a small amount of money into some of its banks.

The Irish government insists that it still hopeful of convincing EU leaders to allow Ireland to get some of the enormous bank recapitalization sums taxpayers injected into its lenders back from euro-area bank bailout facility. However, Ms. Lindow said senior banking analysts at Moody’s believe that any such renegotiation seems remote. Source: