A follow-up to yesterday’s blog titled “Sovereign debt crisis far from over. Moody’s may downgrade Ireland again.”
Fitch Ratings lowered Ireland’s credit grade to the lowest of any of the major rating companies and said there’s a risk of a further reduction.
Ireland was cut to A+ from AA-, reflecting the “exceptional and greater-than-expected cost” of the nation’s bailout of its banking system, Fitch said in a statement today.
The move comes a day after Moody’s Investors Service said it may cut the country’s rating. Ireland may have to spend as much as 50 billion euros ($69 billion) to repair its financial system, pushing the budget deficit this year to 32 percent of gross domestic product. Fitch said the rating could be lowered again if the economy stagnates and political support for budgetary consolidation weakens.
Ireland has injected about 33 billion euros into banks and building societies, including 22.9 billion euros into Anglo Irish Bank Corp. Anglo Irish may need up to an additional 6.4 billion euros of capital and a further 5 billion euros in the event of unexpected losses. Irish Nationwide Building Society may need a further 2.7 billion euros.
Fitch said the “timing and strength” of the recovery is critical to reducing the budget deficit. While the economy is rebalancing, “ongoing distress” in real-estate markets and uncertainty over the global economic outlook “weigh on growth prospects and fiscal outlook,” it said.
Irish consumer confidence plunged the most in more than four years last month due to the mounting burden of bailing out Anglo Irish and the surge in sovereign borrowing costs.
“Ireland has experienced a great panic,” said Austin Hughes, chief economist at KBC Ireland. There is a “risk that a sense of apocalyptic gloom may trigger a freeze in spending.”