Troubled Euro Countries Could Recover Sooner Than Expected: S&P

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Peripheral European economies are paving the way for an earlier return to growth than forecast thanks to fast-growing exports and falling labor costs, Standard & Poor's said in a new report on Monday.

The ratings agency pointed out that Spain and Portugal in particular had seen exports rise strongly.

"For 2013, we forecast that Spain, Portugal and Ireland will operate outright current account surpluses, potentially enabling them to post an earlier recovery of GDP (gross domestic product) than we had previously anticipated," the report said. Current account surpluses occur when countries receive more in payments for selling domestic goods than they do in payments buying imports.

S&P highlighted several factors that could impact a country's current account balance, including national "unit labor cost",indicating the country's competitiveness, as well as exports and investments.

Ireland was a standout in terms of unit labor costs, with cuts to both public and private sector wages, and large-scale job cuts especially in the construction sector. Spain's unit labor cost also shows a significant decline. But much of this results from rising unemployment, rather than wage cuts, S&P pointed out.

Spain, together with its neighbor Portugal, reported an increase in exports to all-time highs in 2012. Export growth came mainly from China, Brazil, Angola, Mozambique and the U.S., rather than other EU countries.

The highest scorers in S&P's scale are Ireland and Estonia. Both countries fared better in attracting foreign direct investment.The report notes however that in the Irish case, a portion of these inflows comes from multinational companies booking dividends through the low corporate tax country, while Estonia is good at getting manufacturing investments from Nordic parent companies.

Greece presents a less positive picture. Although its current account deficit has also decreased, this drop is driven by a decline in imports, not by an increase in exports. "An export recovery has failed to take hold in Greece….exports of Greek goods and services remain below 2008 figures," S&P said.

The Troika's delay of loan disbursements in 2012 had a knock-on effect on domestic demand, explains the S&P report. Greece was helped somewhat by the debt restructuring it received. As a result, the Greek government pays lower interests on its external debt.