Moody’s cuts rating on Ireland’s government bonds due to weak economic outlook

Moody’s downgrades Irish government debt rating

DUBLIN — Moody’s ratings agency on Monday downgraded Irish government bonds by one notch due to a deteriorating economic outlook, a heavy debt burden and liabilities in the banking system.

Ireland was hit hard by the global financial crisis as a collapse in the property market nearly took down the banking system. It was also among the first European countries to impose painful austerity measures to tackle the outsized public debt load.

In a statement from its office in Frankfurt, Moody’s s Investors Service said it dropped its rating on the government bonds from Aa1 to Aa2.

“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” says Dietmar Hornung, Moody’s lead analyst for Ireland.

Moody’s noted that government tax collections have fallen has gross domestic product has declined since 2008. The general government debt-to-GDP ratio has risen from 25 percent before the crisis to 64 percent and is still rising, Moody’s said.

The rating agency said it was also concerned about Ireland’s weaker growth prospects because of the severe downturn in the financial services and property sectors, and a contraction in private sector credit.

The third factor worrying Moody’s was “the crystallization of contingent liabilities from the banking system, as represented by a series of recapitalization measures” and the need for Ireland to create a National Asset Management Agency (NAMA) to take away bad loans from banks.

Standard & Poor’s downgraded Irish bonds from AA+ to AA in March last year, while Fitch Ratings cut Ireland from AAA to AA- in two steps last year, according to Barclays Capital.