Moody’s “Negative to Stable” Comment Refers to the Rating Not the Economy
This post was written by Karl Whelan
I have heard various RTE reporters state in three different reports that despite yesterday’s ratings downgrade, the good news is that Moody’s changed their “outlook for the Irish economy” from “negative to stable”. I know the vast majority of our readers know that this is incorrect. But, just in case anyone has been mislead by this, here’s where Moody’s use the phrase stable:
On 19 July 2010, Moody’s announced its decision to downgrade Ireland’s government bond ratings by one notch to Aa2 from Aa1. Moody’s has changed the outlook on the ratings to stable from negative as we view the upside and downside risks as evenly balanced at the current rating level.
So, you can see that it is the outlook for the rating that has been changed from negative to stable. Having downgraded the debt, they’re saying they’re not anticipating further downgrades now. In relation to the economy, Moody’s said the following:
The Department of Finance has based its debt projections in the SPU on the expectation of growth rates exceeding 4% in the period 2012 to 2014. For the reasons mentioned above, we believe these forecasts to be optimistic and instead expect real growth to range from 2% to 3% from 2011 onwards.
So, for what it’s worth, Moody’s are more pessimistic on growth in the Irish economy than the government.
Tags: Sovereign Debt
July 20th, 2010 at 2:13 pm
The key speculation is was this gaffe on RTE’s part due to (a) ignorance (b) wishful thinking or more ominously as suggested by others (c) a conspiracy by the State organ to put an optimistic spin, knowing it to be misleading.
Not a conspiracy theorist myself so I put it down to a combination of (a) and (b)
July 20th, 2010 at 2:37 pm
@ Karl
eh, actually, this is what is being attributed to Moodys Vice President Dietmar Hornung yesterday:
“More positively, Mr Hornung opined that the Irish economy was stabilising and that the country had “turned the corner”.
Its unknown is Herr Hornung was wearing a green jersey at the time, however…
On another note, can we open up another dedicated thread to correct a related error that appeared in the story published on the RTE website dealing with the Moodys decision, when it stated that:
“rival S&P….maintains a negative outlook for the country”.
No they don’t, they maintain a negative outlook on the credit rating of the country. This off-teal jersey-wearing attitude is what got us into this mess in the first place…
July 20th, 2010 at 2:55 pm
Eh, actually, Eoin, as specifically noted above, in each case the RTE reporter discussed how the “outlook” for the economy was “upgraded from negative to stable.” I would have absolutely no problem with them referring to comments about the economy stabilising but it’s clear that the comments have simply misunderstood language used in relation to the rating.
The comment you noted about S&P further illustrates that they don’t understand ratings-speak.
July 20th, 2010 at 2:58 pm
Who does? I prefered the days when words like ratings, CDO’s, CDS, Derivatives, Haircuts, Long term economic value etc etc were not used on the front page of the newspapers or on news programmes. Actually heard someone discussing it in the pub last night.
July 20th, 2010 at 2:59 pm
@ Eoin
Wasn’t Dietmar Hornung on the RTE panel for the World Cup?
July 20th, 2010 at 3:01 pm
@ Karl
im only messing. Simply noting that such mistakes are unfortunately common in the Irish media, and making sure you highlight the positive as well as the negative mistakes!
If you ever read a Bloomberg story it goes into ridiculous detail at times, but at least you can’t claim they don’t explain things properly and in full…
July 20th, 2010 at 3:10 pm
@ Karl
a German ex footballer with a scouse accent giving a credit outlook on the Irish economy? Nothing would surprise me these days…
July 20th, 2010 at 3:14 pm
@KarlWhelan
So, for what it’s worth, Moody’s are more pessimistic on growth in the Irish economy than the government.
I’d say “for what it’s worth” is a very apt phrase.
Its worth about as much England 2010 World Cup memorabilia.
In May 2009, Moody’s forecast that Ireland’s GDP (repeat: GDP) would fall by 4.5pc in 2010 (on top of a forecast 9pc in 2009). The latest forecasts (not from Moody’s) are for a rise in GDP in 2010 of about 1pc. So, even without any further upward revision to growth forecasts (very unlikely, in my opinion), their 2010 forecast looks like being out by 5.5pc.
July 20th, 2010 at 3:24 pm
@Eoin - explaining things in full requires that the person has an understands of what needs to be explained. On the evidence we see every day RTE should invest in a bit of training.
July 20th, 2010 at 3:29 pm
I think RTE needs to poach some economics heavyweights currently snoring away on the opposition backbenches of Dail Eireann to come and advise their journalists….oh wait, that already….aw forget it.
July 20th, 2010 at 3:30 pm
@ JTO
I’m all for a bit of ratings-agency bashing and do it myself from time to time. However …. one could say that the biggest mistake that ratings agencies made in the past was being too pessimistic, so it’s easy enough to understand why Moody’s would look to take a more pessimistic line on growth than the government.
July 20th, 2010 at 4:44 pm
I was in Newstalk this am (from sunny Italy) and commented on thus issue Ivan yeates and Gavin Duffy of dragons den were perfectly ok with the correction I gave them.
July 21st, 2010 at 12:57 pm
Are any of these rating agencies likely to survive the “DonK” Bill just passed in the US Congress?
http://www.zerohedge.Dcom/article/did-credit-agencies-just-go-extinct
July 21st, 2010 at 7:40 pm
Fitch’s view of Ireland needs to be revised.
http://www.ntma.ie/Publications/2009/fitchRatings_November2009.pdf
” Even assuming the government is able to consolidate the budget over the coming years, general government debt (official definition) will peak at 80% of GDP. Government liabilities rise to over 110% of GDP when fiscal funding for the carve out of bad bankassets is taken into account.”