Last year proved to be an inflection point for the Irish economy, with the domestically focused component of it beginning to stabilise after years of sharp declines. We see this continuing in 2013 as employment increases, consumer spending levels off and investment starts to pick up.
In saying this, as we have noted before, the Irish economy is more open than most, with every 1% move in world growth estimated to move Irish GDP by 1.4-1.6%, so external developments over the coming months have the potential to move our forecast dial in either direction.
The ‘vicious circle’ that had existed between the Sovereign and the banks looks to have given way to a new ‘virtuous circle’ as an upturn in confidence facilitated a successful return to the bond markets during 2012. We see both the Sovereign and the banks building on this progress over the coming months.
Hence, in terms of the bond market, we believe that Irish Sovereign and bank bonds will continue to perform resiliently, underpinned by supportive fundamentals and technicals.
For more detail, please consult our research note, which can be downloaded by clicking on this link: www.ncbresearch.com/PDF_Archive/2013-01/Lucky13.pdf
Philip O’Sullivan
Chief Economist
