For those who are interested, our article on the above topic is available here.
Category: Fiscal Policy
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.
In an earlier post, I wrote about postponement of water charges and property taxes — partly because proper preparations started too late and have not progressed fast enough. The same is true for privatisation and, it emerged today, for child benefits. It looks increasingly likely that there will be €3 bln worth of spending cuts in the 2011 budget.
Moody’s have downgraded Irish sovereign debt again, this time to Aa2 “blaming banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio.”
The FT’s Alphaville people are inclined to blame it on Dan Boyle for his comments to the Sunday Tribune (reported internationally with an interesting headline by Reuters.) I think the FT people are pulling our legs a little attributing such importance to Dan. However, the comments did seem a little strange.
The bond market reaction has been fairly muted, with the ten year sovereign yield ticking up only a few points. However, yields at 5.5 percent are hardly satisfactory. If sustained over a long period, interest rates of this type would make it very difficult to stabilise the fiscal debt.