UPDATE 2-Ireland sticks with austerity plan, Fitch ups outlook

Wed Nov 14, 2012 6:45pm GMT

* Ireland ups 2012 growth f'cast, trims 2013-2015 figures

* Austerity plans for next three years remain appropriate

* Fitch upgrades outlook to stable on "continued progress"

By Padraic Halpin and Conor Humphries

DUBLIN, Nov 14 (Reuters) - Ireland said it will not add new austerity measures despite cutting its growth forecasts for the next three years on Wednesday as Fitch rewarded it for continued fiscal and funding progress by raising its outlook.

Bailed out Ireland has made spending cuts and tax hikes worth 25 billion euros ($31 billion) since 2008 - equivalent to 15 percent of annual output - and believes the 8.6 billion program already planned for 2013 to 2015 will be enough to get it back on track.

That fiscal discipline helped Ireland become the first bailed-out euro country to resume borrowing on long term debt markets while at the same time eeking out some growth, prompting Fitch to conclude that risks to its adjustment had narrowed.

"The revision of the outlook reflects Ireland's continued progress with its fiscal consolidation, external adjustment and economic recovery, as well as the sovereign's improved financing options," Fitch said in a statement.

The rating agency left Ireland's rating at BBB+, three notches above junk status, while upgrading its outlook to stable from negative. Moody's is the only one of the three main rating agencies to have downgraded the country to non-investment grade.

That news came after Irish voters, who have demonstrated little during the crisis and did not join European-wide protests on Wednesday, learned they will not face a nasty surprise when measures totalling 3.5 billion euros are outlined in next month's budget for 2013.

"On balance the government believes that the previously identified fiscal adjustment path remains appropriate given the need to support the emerging economic recovery," the country's finance department said in its biannual economic update.

"Notwithstanding this welcome progress, it is clear that a challenging road lies ahead."

Those challenges include pushing through further adjustments of 3.1 billion euros in 2014 and 2 billion in 2015 to cut a budget deficit set to be among the highest in Europe at 8.3 percent of GDP this year to an EU target of 3 percent by 2015.

Yet despite the unprecedented austerity, Ireland has avoided joining much of the euro zone in recession thanks to a robust export sector and expects to post its second year of economic growth in a row this year.

It inched up its forecast for gross domestic product (GDP) growth in 2012 to 0.9 percent from 0.7 percent previously, a move flagged by the finance minister last week.

EURO ZONE RISKS

However, slowing demand from abroad, together with high unemployment and relentless austerity at home, is getting in the way of the kind of activity that would make big inroads into a government debt set to peak at 121 percent of GDP next year.

The economy will therefore grow by 1.5 percent next year and not the 2.2 percent forecasted in April, the finance department said in a downgrade that was also anticipated.

That is still more optimistic than the 1.1 percent predicted by the European Commission and International Monetary Fund, two of the lenders monitoring Ireland's bailout, but in line with economists polled by Reuters last week.

The ministry said the primary external risk stemmed from the euro zone crisis while high household indebtedness could have a worse than anticipated impact on a domestic economy where unemployment is forecast to stay above 13 percent in 2015.

The economy is seen growing by 2.5 percent in 2014 and 2.9 in 2015, lowered than the prior prediction for 3 percent in each year and the report said this assumed a pick-up in Ireland's main export markets during the second half of next year.

After Ireland sliced around 10 billion euros off its post-bailout funding requirements through this year's market return, the ministry added that it expected the debt management agency to continue to extend its market presence.

However, Moody's warned on Wednesday that Ireland will need more bailout funds when its programme ends, adding that while action to date were impressive, risks remained.