Moody's forecasts lower growth

Ireland's economy is set to grow by 1 per cent in 2012, a new report from Moody's Investors Service has predicted, a slower pace of expansion than the Government has forecast.

Minister for Finance Michael Noonan forecast last week that the economy would grow 1.3 per cent next year, cutting an earlier forecast of 1.6 per cent.

In its Weekly Credit Outlook, the ratings agency said Ireland's 2012 budget and fiscal projections will support the country's debt rating.

However, it said a deceleration in European economic activity, fragile banking systems and partly dysfunctional credit markets are factors that are negative for the country.

The agency also said this morning it still expects to review its ratings on all European Union sovereign credit in the first quarter of next year, adding that last week's agreement by European policymakers offered few new measures to resolve the region's debt crisis.

Twenty-six of the 27 European Union leaders on Friday agreed to pursue stricter budget rules for the single currency area and also to have euro zone states and others provide up to €200 billion in bilateral loans to the International Monetary Fund (IMF) to help tackle the crisis.

"In substance, however, the communique offers few new measures, and does not change our view that risks to the cohesion of the euro area continue to rise," Moody's said in its weekly credit report.

"As we announced in November, unless credit market conditions stabilise in the near future, our ratings of all EU sovereigns will need to be revisited. The communique does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012."

The communique reflects the continuing tension between euro area leaders' recognition of the need to increase support for fiscally weaker countries and the significant opposition within stronger countries to doing so, Moody's noted.

"Amid the increasing pressure on euro area authorities to act quickly to restore credit market confidence, the constraints they face are also rising. The longer that remains the case, the greater the risk of adverse economic conditions that would add to the already sizeable challenges facing the authorities' coordination and debt reduction efforts."

Additional reporting: agencies