Ratings agency Moody’s has said that Ireland’s economy is recovering at a reasonably fast pace but that last year’s strong growth pattern is unlikely to be repeated this year.
In an update to markets, the agency said the strong investment recovery now under way will at some point require a pick-up in bank lending. It warned however, that with the banking sector still weak, that this is unlikely to happen anytime soon.
The agency said that risks arising from the sector for the Government's balance sheet have reduced significantly as a result of strengthened capital, liquidity and funding profiles. It also noted the work done by the National Asset Management Agency (Nama in terms of reducing risks.
"Ireland's 2014 economic performance was strong with real GDP growth estimated at around 5 per cent, and the country's growth prospects remain solid. However, we believe that the strong growth in exports is unlikely to be repeated as it was partly due to special factors related to offshore production activity," said Kathrin Muehlbronner, a senior credit officer at Moody's.
She said the agency expect economic growth rates of 3.8 per cent and 3 per cent in 2015 and 2016, respectively.
Budget deficit
Moody's said it expects that Ireland will continue to bring down its budget deficit, with the 2015 budget targeting a deficit reduction to 2.7 per cent of GDP, from an estimated 3.9 per cent last year.
The agency said that aside from the economic recovery, Government finances will benefit from the savings on interest expenditure following the replacement of IMF loans with cheaper market funding. It cautioned though that with a loosening of fiscal policy in the last budget that debt levels will decline at a slower pace that previously.
Moody’s previously described Budget 2015 as a ‘missed opportunity for Ireland to further reduce its elevated debt levels and warned that the move left the economy “more vulnerable to unexpected shocks.”
In its latest update the agency said that while 2014 represented the first year in which Ireland’s public-debt-to-GDP ratio declined, the ratio remains among the highest in its sovereign rating universe. Moody’s said however that it expects the debt ratio to decline gradually below the 100 per cent mark by 2018.
