Irish Credit Rating Downgraded Again

Ireland's international credit rating has again been downgraded by an influential international ratings agency.

Moody's is a major ratings agency informing outside investors on investment risk. The agency has downgraded Ireland's sovereign bond rating from Aa1 to Aa2, possibly harming Ireland's ability to attract investment from overseas.

In its findings, published at the end of last week, the agency blamed banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio for the downgrade. The banking bailout, including the transfer of loans to the National Asset Management Agency, was also cited as a key factor in the rating downgrade.

Moody's expects Ireland's economic growth to be below its historical trend in the next three to five years and that the banking and property sectors, which had driven the economy before the global economic downturn, to have a limited contribution to overall growth in coming years.

The findings could cause real difficulty to the property industry in attracting new investors.

However, despite the downgrade, the agency also moderated its outlook for Ireland from negative to stable, while findings from the Economic and Social Research Institute (ERSI) today have suggested the outlook may not be so glum after all.

In an update to its May 2009 Recovery Scenarios for Ireland research, the ERSI said they predicted two medium-term scenarios for the economy.

In the institute's High Growth scenario, they predicted a vigorous recovery over the period 2012 to 2015, which would see output per head restored to its 2007 level by 2015.

In the less optimistic Low Growth scenario the recovery in output, while significant, would be much lower, resulting in substantial continuing unemployment and a higher structural budget deficit.

(DW/KMcA)