Moody’s released ratings for Ireland’s foreign and local currency government bonds, downgrading them by two notches from Baa1 to Baa3.
The negative outlook on the Irish government bonds undermines confidence in the Irish government’s financial strength and the country’s economic growth prospects. Additionally, uncertainty created by the solvency test required by the European Stabilization Mechanism (ESM) for the provision of future liquidity support fuelled negative expectations for the Irish economy’s health.
However, despite the downgrade, Moody’s rating on Ireland remains in the investment-grade category, reflecting the Irish economy’s continued competitiveness and a favourable tax environment for businesses.
The labour market has been flexible with regards to the considerable wage adjustment that occurred in the course of the crisis. Taking Ireland’s economic adjustment capacity into account, Moody’s expects that, after a period of prolonged retrenchment, Ireland’s long-term potential growth prospects remain better than those of many other economies in the Eurozone.
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