DUBLIN: Ireland’s economy probably returned to growth in the first quarter of this year for the first time in nine months, according to a Reuters poll of economists.
The country, which is on course to exit its European Union/International Monetary Fund bailout later this year, saw its economy grow by 0.9 percent last year, one of few euro zone economies to have managed to eke out mild growth.
But all of that growth was in the first half of 2012, with gross domestic product (GDP) contracting by 0.4 percent in the third quarter and coming in flat in the fourth.
According to the average forecast of 11 economists polled by Reuters, GDP is now expected to grow by 0.3 percent in the first quarter of 2013 and will expand by 1.3 percent in 2013 as a whole.
Recent purchasing managers index surveys, seen as a good indicator of future economic activity, have shows signs of a rebound, while unemployment has also fallen.
“There are some reasons to be cautiously optimistic about Ireland this year. Not only has the country taken well-publicized steps to regain lost competitiveness, but the domestic economy has shown signs of revival,” said Alan McQuaid, chief economist at Merrion Stockbrokers.
“But as a very open economy, Ireland remains vulnerable to continued weakness in its key export markets, not least the UK, as well as a possible re-escalation of market turmoil regarding the future of the euro zone following the events in Cyprus,” he said.
The poll said the economy will grow by 2.4 percent in 2014 and 3 percent in 2015, buoyed by exports whose growth is forecast to accelerate to 5 percent in 2016 from 3.1 percent this year.
The government sees economic growth accelerating to above 2.5 percent in 2014 and in 2015, a level needed to put government debt, set to peak at 121 percent of GDP this year, on a downward trajectory.
Personal consumption, a key indicator of the health of the domestic economy will contract by 0.5 percent in 2013, before expanding by 0.7 percent in 2014, and unemployment is seen only falling to 11 percent at the end of 2016 from 13.8 percent at the end of the year. Meanwhile, credit agency Moody’s dashed Irish hopes of an investment grade rating in the wake of its landmark 10-year bond issue, saying Cyprus’ “unprecedented” bailout increased the risks associated with holding Irish debt.
Moody’s, the only agency that ranks Ireland’s debt as “junk”, said on Thursday that, despite the country’s steady progress in regaining market access, it was maintaining its Ba1 rating with a negative outlook.
“Ireland’s vulnerability to wider euro-area stresses has been reaffirmed by euro area policymakers’ handling of the Cyprus crisis,” Moody’s said in a statement.
The crisis showed policymakers’ “increased risk tolerance” and “a more uncompromising and less predictable approach to crisis management”, it added. Irish officials had hoped Moody’s would at least lift its negative outlook after taking its biggest step yet this month towards exiting an EU/IMF bailout this year, selling 5 billion euros ($ 6.4 billion) of new 10-year bonds.
The head of Ireland’s debt agency John Corrigan said at the time that the success of the auction indicated “either the market is wrong or Moody’s is wrong.”
Moody’s Ireland analyst Kristin Lindow said there was no contradiction as market pricing was about “a lot more than just credit risk.”
She said she could not say whether or not there would be an upgrade in the current year, in part because it was unclear how the broader euro zone crisis would develop.
“If there were mistakes made that lead to turbulence in the markets, Ireland specific events might not be able to counter that,” Lindow told Reuters in a telephone interview.
Weakness in euro zone economies could impact Ireland’s economic growth, the “fundamental issue” that will determine future ratings, Lindow said. While resilient exports have seen Ireland’s economy grow for the last two years and data last week showed consumer spending had risen in the last two quarters of 2012, figures on Thursday painted a picture of a domestic economy remaining sluggish.
On the domestic front, Moody’s said the biggest risk was the continued poor asset quality of Irish banks, and their likely reluctance to provide new credit when loan demand revives, indicated that the country did not deserve investment grade.
Irish GDP expected to grow by 0.3 percent in first quarter
