Ireland's rising budget deficit could affect the outlook for its sovereign debt rating but the Irish economy may reach "rock bottom" and start recovering sooner than other countries, Fitch Ratings said today.
Ireland is rcurrently ated 'AAA' by Fitch, Standard & Poor's and Moody's, but S&P warned on Friday it may cut its rating due to buckling public finances.
"I find it very difficult to keep up -- so fast the news from Ireland deteriorates," Fitch Ireland analyst Chris Pryce told reporters.
"Tax receipts have fallen through the floor and that of course means a huge deficit especially for this coming year and no obvious end in sight," Mr Pryce said.
"It could well affect the outlook for ratings," he added. He would not comment on any specific rating moves planned.
More than a decade of "Celtic Tiger" boom fuelled by construction ended abruptly with Ireland becoming the first euro zone country to enter recession last year.
"My colleagues in the banking section are equally worried because the same factors affect them directly," Mr Pryce said.
"The banks that lent all this money are now considering how much of it they are likely to get back. That affects the government's position via the banks."
Ireland has offered a state guarantee for some €440 billion euros worth of bank liabilities and said it would inject €5.5 billion into three of the country's biggest lenders.
The Department of Finance said on Friday gross domestic product was predicted to contract 4.0 per cent this year, from an 0.8 per cent drop forecast at budget time in October, making it Ireland's worst recession on record.
It also said the economy was GDP was predicted to fall a further 0.9 per cent in 2010, rebounding to 2.3 per cent growth in 2011.
"Ireland is having a miserable time but then so are a lot of other countries in Europe and elsewhere," Mr Pryce said.
"It may simply be that Ireland is leading the group down and that it may reach rock bottom sooner and start recovering sooner."
The Department of Finance also raised its forecast for the 2009 budget deficit to 9.5 per cent of GDP -- more than triple the 3 per cent EU limit -- from 6.5 per cent projected in October and 7.25 per cent forecast last month.
"There are some compensating advantages for Ireland," Mr Pryce said. "It starts from a very low base as regards debt and the figures quoted are gross and do not take account of savings."
Ireland's national debt, calculated net of exchequer cash balances, increased to €50.7 billion or 32.5 per cent of gross national product (GNP) by the end of 2008 from 23.3 per cent a year earlier.
General Government Debt, used for comparisons in the EU, rose to 41.3 per cent of gross domestic product (GDP) from 24.8 per cent at the end of 2007.
"Ratings agencies can take account of the savings available to Ireland that are not generally available to other European governments," Mr Pryce said.
Reuters