By Zoe Wood
Ireland warned credit rating cut ‘likely’
• Moody’s to review Aa2 rating amid fears over recovery
• Ireland facing 32% deficit after €50bn banking bailout
Moody’s today warned that it was considering cutting Ireland’s credit rating amid concerns that its economic recovery was running out of steam, coupled with the financial burden of the €50bn (£43bn) bailout of its crippled banking system.
Moody’s Investor Services said Ireland’s Aa2 rating would “most likely” be cut by one notch if the downgrade went ahead – a change that would bring its rating on the country in line with Standard & Poor’s and Fitch Ratings.
Last week Allied Irish Bank became the fourth bank to be nationalised by the Fianna Fáil-led government while Anglo Irish Bank, which is already owned by the state and is the country’s largest bank, is to be given another €7bn taxpayer-funded injection.
The bailout is expected to swell Ireland’s deficit to 32% of economic output this year – the biggest in Europe since the second world war.
The country’s worsening finances have fuelled speculation that it might have to follow in Greece’s footsteps and tap the €750bn rescue fund set up by the European Union and International Monetary Fund at the height of the sovereign debt crisis.
Higher borrowing costs in the bond markets since July, when Moody’s last cut Ireland’s rating, also make servicing the national debt more expensive.
Evidence that Ireland’s economy is weakening, despite the bailout, came last week when figures from the NCB Purchasing Managers’ Index, which measures Irish manufacturing activity, showed that the country’s manufacturing sector shrank for the first time in seven months.
Moody’s also said that it could downgrade the Aa2 rating of Ireland’s National Asset Management Agency (NAMA), whose debt is fully and unconditionally guaranteed by the government of Ireland. [Paid for by the public tax payers]