Two killer reasons why Moody’s upgraded Ireland’s debt rating
Irish political stability and positive economic fundamentals were the two reasons cited for a rating upgrade over the weekend.
Moody’s raised the long-term bond ratings one notch from Baa1 to A3 and reaffirmed a positive outlook. Despite fears over the implications for Ireland of a Brexit, 10-year bond yields were at a one-month low last week an anticipation of such a move.
In comparison with fortunes across the Irish Sea, Moody’s said: “Ireland's key credit fundamentals have continued to improve at a faster pace than expected even a few months ago, including a stronger economic recovery and a more marked reduction in the public debt ratio.”
After nearly two months of negotiations that followed a tight general election, a minority government was finally agreed earlier this month. Such certainty underpinned the positive change.
“The recent political agreement between the two largest parties in parliament and the recent election of a minority government led by Fine Gael, which has established a strong track record of fiscal management over the past several years, give comfort that the budget deficit will be reduced further in coming years,” Moody’s said.
The news will likely further fuel ever-louder clamouring that the Celtic Tiger is set to return. With a growth rate of 7.8 per cent, Ireland was the fastest growing eurozone economy in 2015 for the second straight year. This against a recent history that saw an embarrassing bailout in 2010 that was preliminarily a result of government guaranteeing banks that had lent heavily against property on the run up to the credit crisis in 2008.
But implications of a UK exit from the EU remain could be the largest risk to the economy according to analysts. Natixis strategist Cyril Regnat said: “I would be a bit more cautious because if we get a Brexit, then Ireland would be one of the biggest casualties in the euro zone."
While the exact economic impact of Brexit on the UK economy remains a vogue political football, research by Davy Stockbrokers shows that a 1 per cent decrease in U.K. economic output has led in the past to a 0.3 per cent drop in Ireland.