Moody’s warns of further Irish downgrade

| October 5, 2010 | 0 Comments
Moody's warns of further Irish downgrade

Credit rating agency, Moody’s, today warned it may downgrade Ireland’s credit rating again, due to its ailing banking system.

In addition, the agency said weak economic growth and rising borrowing costs could lead to the further cut.

In July, Moody’s cut Ireland’s sovereign bond rating to Aa2 from Aa1. Other agencies, Standard & Poor’s and Fitch Ratings put Ireland’s rating at AA and AA- respectively.

The latest comment from Moody’s comes shortly after the Irish Government said it was introducing additional austerity measures, to bring the deficit below 3% of GDP by 2014 to keep within euro zone rules.

The former “Celtic Tiger” economy has a ballooning budget deficit of 32% of GDP this year.

The deficit has spiralled out of control after the country’s banks have drained the economy due to massive bailouts.

This has led the central bank of Ireland to revise its growth projections for the 2010 year. It is predicting the economy will expand by just 0.2% – lower than its previous forecast of 0.8%.

Meanwhile, Moody’s is concerned that prolonged austerity could severely weaken domestic demand with a knock-on impact on Government revenues.

In a further blow to Ireland’s economy, figures today revealed the services sector contracted for the first time in six months in September following a severe decline in domestic orders.

The figures followed last Friday’s announcement that manufacturing activity contracted in September, with the purchasing managers’ index falling to 48.4 in the month, down from 51.1 the previous month.

Many analysts are of the opinion that Ireland will fall into recession again and recent figures will just add fuel to the fire.

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