Fresh blow to Ireland as Fitch cuts credit rating

FEARS increased last night that Ireland is set for a wave of further downgrades after Fitch cut the country's credit rating citing the huge cost of cleaning up its banks.

Adding to the economic uncertainty, the International Monetary Fund (IMF) predicted the global economy would grow more slowly than previously expected next year.

It said GDP would increase by 4.2 per cent in 2011, down from an earlier forecast of 4.3 per cent as governments worldwide struggle to repay debts. The fund's half-year report added that it was "worrisome" that UK property prices remained so expensive and were vulnerable to a double dip.

Fitch's downgrade on Ireland came a day after rival rating agency Moody's said it might downgrade the country's debt. To add to the woes, the country's regulator yesterday warned levels of soured property loans could be worse than disclosed while consumer sentiment had plummeted.

The string of bad news drove yield spreads on Irish debt higher, putting further pressure on a government already struggling to keep a lid on a debt crisis that threatens to spiral out of control.

As well as cutting Ireland to A+ from AA-, Fitch put its rating on a negative outlook, also pointing to uncertainty over the country's wavering economic recovery.

The Irish government last week revealed that it could cost as much as €50 billion (43.8bn), to unwind years of reckless lending to developers during the "Celtic Tiger" boom. It now costs Ireland almost three times as much to borrow as Germany. But Ireland is still well short of the BBB- rating - one step short of junk status - that Fitch has on Greece.