Moody’s cuts Irish debt as crisis deepens
WEAKENED growth prospects and the Irish government’s significant loss of financial strength drove ratings agency Moody’s to downgrade Ireland to Aa2 from Aa1 yesterday.
It said the reason for the downgrade was: “The government’s gradual but significant loss of financial strength, as reflected by the substantial increase in the debt-to-GDP ratio and weakening debt affordability.”
The agency said another crucial factor was: “Ireland’s weakened growth prospects as a result of the severe downturn in the financial services and real estate sectors and an ongoing contraction in private sector credit.” However, Moody’s now sees the country’s new rating as stable rather than negative.
“However, with catch-up sovereign rating downgrade action expected to continue, particularly due to high levels of indebtedness relative to existing high credit ratings, there is still a risk that some unexpected downgrades could arrive, particularly to core European sovereigns,” said Gerard Fitzpatrick, global fixed income portfolio manager at Russell Investments.
Concerns about the European sovereign debt situation intensified over the weekend after the EU and the International Monetary Fund (IMF) withdrew a €20bn (£16.9bn) financing deal for Hungary. The EU said Hungary’s corrective measures fell short of the required adjustment. But Hungary yesterday hit back, ruling out further austerity measures this year.