IRELAND’S CREDIT RATING has been downgraded from A- to BBB+ (that’s three above junk status) by ratings agency Standard & Poor’s, with an outlook of ‘stable’.

According to S&P, the downgrade relfects the possibility of debt restructuring being a pre-condition to Ireland borrowing money from the EU.

In a statement issued today (registration required), S&P said it was removing Ireland from its CreditWatch list. According to Standard & Poor’s credit analyst Frank Gill:

The outlook is now stable, reflecting our opinion that the assumptions underlying the stress test…conducted by the Central Bank of Ireland -in conjunction with the IMF, European Central Bank, and European Commission – are robust and that the expected €18-€19 billion (11.5%-12.0% of GDP) net cost to the Irish state of additional recapitalization, plus the contingency buffer for the banking system, is within our range of expectations, albeit at the upper end.

Although the outlook is considered stable, a further downgrade is possible if the government significantly fails to meet its “ambitious fiscal targets”.

The agency said it would consider raising the credit rating if the state manages to raise more than 10 per cent of GDP through NAMA’s asset sales quicker than expected or if growth exceeds S&P’s expectations of 2 – 2.5 per cent.

Gill said S&P believes the “sharp contraction” in the state’s GDP and GNP since 2008 has drawn to an end and “the Irish economy is now set to gradually recover”.

S&P downgraded Portugal and Greece earlier this week, increasing the likelihood that Portgual will follow Greece and Ireland in seeking a bailout.