The Irish economy is now at the center of the Eurozone headlines, as it is the first Euro area nation to have been able to come out of the bailout program last week.
The economy was granted 85 billion euro ($115 billion) of aid by the International Monetary Fund and European Union three years back after a banking collapse and a property bubble burst, but seems to be entering a new phase in its economic development now.
After all, the country met each and every clause under the 85 billion euro bailout program without facing any massive public unrest. Stringent austerity measures mainly made this achievement possible.
Things are yet not over the hump just yet though, as austerity will continue to pull the budget deficit down in the coming days and reduce the sky-high debt burden. But still, many important economic indicators show that the nation is on the right track (read: Why PIIGS ETFs Are Outperforming).
Economic Indicators Reaffirm Positive Mood
GDP growth Back on Track: The economy scored 0.4% of GDP growth in Q2. As per the European Commission, the Irish GDP will expand 0.3% in 2013, 1.7% in 2014 and 2.5% in 2015. Although, this is a reduced projection, the scenario is brighter than some other Euro zone nations including Greece, Cyprus and Portugal which are still struggling with their bailout funds. The European Commission accounted for a lower-than-expected private consumption for this lowered guidance.
Lower Joblessness: Though the unemployment rate still remains very high, it is exhibiting a declining trend. The unemployment rate – which was 14.7% in 2012 – will likely to come down to 13.3% in 2013, 12.3% in 2014 and 11.7% in 2015.
Decline in the All-Important Debt to GDP Ratio: The debt profile is a very important gauge for a Euro zone country. For Ireland, gross public debt as a percentage of GDP is expected to fall from 124.4% in 2013 to 120.8% in 2014 and to 119.1% in 2015. Though on a nominal basis the numbers are stubbornly high, the signs of healing were fair enough to create some bullishness (read: Ride Europe Higher with This Top Ranked ETF).
Rise in Business & Consumer Confidence: Ireland witnessed a steep rise in business confidence in Q3 and to add to the optimism, the country’s commerce is predicted to see faster growth in the coming three months. While the overall Euro zone recovery has supported this confidence with an expected bullishness in Irish exports, domestic sales expectations were also positive for three quarters in a row. Consumer sentiment is finally building up with the 3-month moving average showing a pickup for seven months in a row.
Market and ETF Impact
The excellent yearly run in the Irish Stock Exchange (ISEQ) bears evidence to the fact that such an encouraging trend has not escaped investor attention. ISEQ gained an impressive 32.81% in the last one-year frame (as of December 13). For U.S. investors seeking exposure, there is an only one pure-play ETF in the Irish market – iShares MSCI Ireland Capped Investable Market Index Fund ((EIRL - ETF report) ) which we have highlighted in greater detail below:
EIRL in Focus
The fund looks to track the performance of the Irish equity market and invests about $116.2 million in 26 holdings. It is heavily concentrated in the top 10 holdings which account for almost one-third of the total. The ETF charges a reasonable 49 bps in annual fees.
EIRL is exposed to materials and consumer staples that make up for about 50% of the share in the basket followed by the industrials (20.3%) and healthcare (16.7%) sectors (see more in the Zacks ETF Center).
Return-wise, the fund remains an enticing option having added about 35% in the year-to-date frame (as of December 13) while broader ETFs with significant Eurozone exposure – iShares MSCI EMU Index (EZU - ETF report) and SPDR STOXX Europe 50 (FEZ) – returned 16.3% and 14.1%, respectively. EIRL currently has a Zacks ETF Rank #2 (Buy).
Having exited the bailout program, Ireland can now stand on its own feet, outline its growth path independently and re-enter the money market in full swing. Also, long-term projections appear bullish as the nation promises to close the ongoing austerity measures by 2016 and plans to reduce the unemployment level to as low as 4.2% by 2020.
Nevertheless, this is just the beginning of a journey. Ireland needs to go a long way to return to its pre-recession levels. In fact, the IMF's managing director Christine Lagarde expressed concerns over the nation’s ‘heavy private sector debts and banks’.
But the country is striving hard to turn around. Thus, risk-tolerant investors willing to capitalize on this improving trend might bet their money on EIRL for the long term.
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