FITCH has cut Ireland’s credit rating again, citing the huge cost of cleaning up its banks as the regulator warned levels of soured property loans could be worse than disclosed and consumer sentiment plummeted.
The flurry of bad news, coming a day after rival rating agency Moody’s said it too might downgrade Ireland, drove yield spreads on Irish debt higher, putting further pressure on a Government already struggling to keep a lid on a debt crisis that threatens to spiral out of control.
As well as cutting Ireland to A+ from AA-, Fitch put its rating on a negative outlook, also pointing to uncertainty over the wavering economic recovery. The Government last week revealed that it could cost as much as €50 billion, or over €11,000 per head of a recession-weary population, to unwind years of reckless lending to developers during the Celtic Tiger boom.
“The downgrade of Ireland reflects the exceptional and greater than expected fiscal cost associated with the Government’s recapitalisation of the Irish banks, especially Anglo Irish Bank,” Fitch said in a statement.
“The negative outlook reflects the uncertainty regarding the timing and strength of economic recovery and medium-term fiscal consolidation effort.”
Data in recent days indicates Ireland’s brief and modest economic recovery may have petered out, with surveys over the last week indicating that both its services and manufacturing sectors are back in recession. The fragility of Ireland’s economic recovery and the scale of the mess at its banks has spooked lenders and it now costs Ireland almost three times as much to borrow as Germany. Ireland is still well short of the BBB- rating – one step short of junk status – that Fitch has on Greece, however. “Ireland still retains considerable financial flexibility,” the agency said of a country that has said it will not need to raise money on bond markets again this year.
© Irish Examiner Ltd. All rights reserved