Citibank optimistic on outlook for Ireland
Citibank surprised observers yesterday when it announced prospects for the Irish economy are “better than expected” and the country could regain its sovereign investment grade rating from Moody’s by the end of the year.
It is a turnaround for the bank which, over the past year, expected the country to underperform official and consensus growth forecasts and raised the possibility of debt restructuring.
The change is attributed to better-than-expected growth, led by strong export figures, and the promissory note deal.
Citibank analysts now forecast export-led positive real gross domestic product growth of 0.9 per cent and the public debt/GDP ratio to peak at 120-121 per cent of GDP for Ireland in 2013.
Citibank economist Michael Saunders said “the country hasn’t underperformed official statistics due to exports and domestic demand.
“Exports held up better in the face of the euro area recession and, with exports being such a large share of GDP, it doesn’t take much export outperformance to give you slightly better GDP performance.”
The promissory note arrangement has also helped change the outlook and Citi analysts forecast it could cut financing needs by €20 billion over the next 10 years.
However, Mr Saunders warned recovery is far from fully fledged and although an exit from the troika programme is expected in the latter half of the year, personal debt has continued to rise.
Mr Saunders said “It’s a major threat and consumer spending will continue to fall over several years. Ireland had among the biggest – if not the biggest – household debt boom that any country has had in the last 30 years and the road back is going to be very long and painful.
“Exiting the programme isn’t the be-all and the end-all and Ireland will still need some form of external support for many years to come.”