Unemployment could fall below 10% within two years, says S&P

Unemployment could slip below 10 per cent within the next two years on the back of continued growth, according to an assessment of the Republic’s economy by ratings agency, Standard & Poor’s (S&P).

The agency, which rates the ability of companies and organisations to pay their debts, has published a review of the Irish life insurance industry predicting that it is likely to enjoy improved earnings over the next two years.

"In our view, economic risks in Ireland have receded as economic growth has accelerated through 2014," say analysts Mark Button and Simon Ashworth.

They go on to say that gross domestic product (GDP) – a measure of the wealth generated by the country – has increased by 4.5 per cent this year and will grow by 3.5 per cent next year.

Unemployment

“This will be accompanied by a fall in unemployment to 9.7 per cent in 2016 from 11.2 per cent in 2014,” the analysts forecast.

Savings will increase as a result, which will translate into more people contributing to life policies, while the rates at which savers cash in those policies before they are due to mature are also forecast to slow down.

S&P continues to see the Republic’s banks as a source of weakness, but says that they face decreasing risks.

“Sales of retail life insurance products and regular premium products distributed alongside lending will remain constrained by the weakness of the banks,” its analysts warn.

They also noted that lending to individuals and mortgage approvals have increased, albeit from a low base.

The agency also expects the Government to axe the controversial pension levy in next year’s budget. That move, and the decision to drop capital gains tax relief designed to stimulate property investment, may make life insurance products more attractive to savers.

“Finally, we consider that the Irish Government’s improved budgetary position – net general Government debt is forecast to peak at 117 per cent of GDP in 2013 – will ease the political risks that the life insurance sector faces,” the report notes.

S&P's assessment is the latest in a number of positive reports relating to the Republic and its economy from international ratings agencies. Both Moody's and Fitch boosted the State's rating – their assessment of its ability to repay sovereign debt – in the autumn. This followed an earlier upgrade from S&P.