FITCH, one of the three chief global ratings agencies, has put Ireland on notice that it could cut the country's credit rating if growth in the second half of the year falls below expectations.
In a report on the European sovereign debt crisis, the French-owned agency, said that while Ireland's stress tests in March were "credible'', Ireland's budget deficit remained large and recovery fragile. Fitch has Ireland on BBB+ rating, but with a negative outlook.
"The negative outlook primarily reflects concern at the timing and pace of economic recovery in Ireland,'' said the note.
"If this recovery fails to materialise in the second half of 2011, the rating will come under further downward pressure."
The note from analyst Chris Pryce made it clear that, while the IMF and EU have praised Ireland's progress in the early reviews of the country's bailout programme, growth is key.
Without growth the debt burden of Ireland grows and this in turn can raise borrowing costs even more prohibitively.
The report made it clear that Ireland and Portugal must regain access to the bond market by 2013 or a second bailout programme will be required.
The agency accepted that the potential for Portugal and Ireland to regain access was helped earlier this year when the European Union agreed not to seek "preferred creditor status" ahead of private sector lenders.
But the agency said its focus was now elsewhere. "The principal focus of Fitch's sovereign credit analysis and driver of its rating opinions for both countries will continue to be the outlook for economic recovery and progress in placing public finances on a sustainable path."
The agency said recently measures from the EU were not finally fixing the eurozone debt crisis.
"Although these measures represent positive steps towards securing financial stability, they fall short of a comprehensive solution to the crisis of confidence in the euro area," the agency explained.
"Until there is a broader economic recovery and further progress on deficit reduction, further episodes of financial market volatility appear likely and downward pressure on sovereign ratings will persist.''
Any further downgrades for Ireland are likely to make it harder to re-enter debt markets, but they also usually cause knock-on ratings actions for Irish banks and sometimes for Irish state-owned companies like Bord Gais, ESB and Dublin Airport Authority.