(RTTNews) - Thursday, credit rating agency Moody’s downgraded Ireland’s ratings.

The rating agency slashed Ireland’s government bond ratings to Aa1 from Aaa and assigned a negative outlook.

“The rationale behind the downgrade stems from three key drivers of our credit analysis regarding debt: affordability, financeability and reversibility — which for Ireland are weakened as compared to Aaa peers,” Moody’s said in a statement.

The negative outlook reflects the risk of a further gradual deterioration in terms both of debt affordability — the share of government revenues used for interest payments — and financeability — the cost at which Ireland can raise further debt, the rating agency said.

Dietmar Hornung, a senior analyst at Moody’s pointed out that a significant weakness in the economic activity has been translating into a severe deterioration of Ireland’s public finances, and the country is set to emerge from the current economic crisis with a considerably higher debt burden for the foreseeable future.

Earlier in the week, official data showed that the country’s GDP declined a seasonally adjusted 1.5% in the first quarter, after falling 5.4% in the fourth quarter.

The International Monetary Fund expects Irish GDP to contract 8.5% in 2009, to be followed by a further 3% contraction in 2010. The 2009 budget deficit is expected to be as much as 12% of GDP.

In June, the S&P lowered Ireland’s rating to “AA” from “AA+” citing fears that the government is set to incur a higher-than-expected cost for supporting banks. The agency set the rating outlook for Ireland as “negative”, indicating that it is likely to lower the rating again. Fitch Ratings had downgraded Ireland’s ratings in April and assigned a negative outlook.

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Posted in Categories: Economy, Eurozone, Releases.

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