S&P expects little or no growth for the economy
Published 25/11/2010 | 05:00
RATINGS agency Standard & Poor's (S&P) said it expected little or no growth in the economy over the next two years as austerity programmes and bank restructuring take effect.
The agency lowered its long-term credit rating on the Republic of Ireland to 'A' from 'AA-'. S&P's short-term rating dropped to A-1 from A-1+.
The rating was cut because S&P believes the Government will have to borrow more to make further capital injections into Ireland's banking system.
It said the banking system would take several years to downsize and it believes Ireland's credit worthiness has got worse since the bailout was announced on Sunday.
S&P warned it could make further downgrades by placing Ireland on "creditwatch negative".
It said the ratio of government debt to GDP looks set to exceed the 113pc previously predicted by the end of 2012.
The Government's cost of borrowing rose again yesterday after the drowngrade was announced.
The yield, or interest, demanded for lending to Ireland is now threatening to creep back to the 9pc level seen at the height of the crisis -- before the bailout news leaked out.
The yield investors are receiving for holding Irish bonds due to be repaid in 10 years' time rose to 8.79pc in an early surge yesterday.
It followed the overnight downgrade. The spread, or difference, between the yield charged for Irish versus German bonds is now 6.54pc.
It increased spread was more evidence the markets are not convinced the IMF/EU rescue deal is a long-term fix to Ireland's debt concerns.
Yields rise when investors sell bonds at a discount in order to limit their exposure to a credit.
Other weaker eurozone countries were also affected. Spanish 10-year yields rose 0.16pc to 5.08pc yesterday morning -- the first time Spanish yields have risen over 5pc.
Portuguese 10-year yields were up 0.10pc to 7.17pc.
The downgrade by S&P applies not just to the national debt but to other borrowers whose credit standing is really reliant on the State standing behind them.
These include NAMA and the government-guaranteed Irish banks.
In theory, the downgrade will make it harder for any of those institutions to borrow but the move comes after the markets have already effectively closed to Ireland.