Standard & Poor's on Friday downgraded its credit rating on beleaguered Ireland over debt concerns but gave the eurozone country a "stable" outlook after welcoming its plans to prop up sinking banks. S&P cut its rating by one notch to BBB+ from A-, saying that investors in Irish state bonds could lose out under the terms of a new eurozone bailout system.
In a separate statement, rival agency Fitch said it had placed its ratings on Ireland on "negative watch" - indicating a heightened probability of a downgrade in the near term. However, S&P removed its Ireland ratings from "creditwatch with negative implications" and gave the eurozone country a "stable" outlook - meaning that a further downgrade is unlikely in the short term.
Downgrades by ratings agencies tend to ramp up the costs of borrowing on financial markets for those hit, making their funding problems more difficult to manage, while Ireland is already struggling to service its huge debt. S&P said the agency's stable outlook for Ireland reflected the nation's latest bank stress tests, which on Thursday concluded that its lenders needed to raise an extra 24 billion euros ($34 billion) to withstand another crisis.
S&P also forecast an end to Ireland's sharp downturn. "The outlook is now stable, reflecting our opinion that the assumptions underlying the stress test (...) are robust and that the ... net cost to the Irish state of additional recapitalization, plus the contingency buffer for the banking system, is within our range of expectations, albeit at the upper end," said S&P credit analyst Frank Gill.
The agency added in its statement: "We are of the opinion that the sharp contraction in Ireland's nominal GDP... since 2008 has reached an end, and that the Irish economy is now set to gradually recover."