New York Standard & Poors on Thursday reduced its longterm sovereign credit rating on Spain by two notches to alt39 BBB+alt39 from alt39 Aalt39, expressing concern about the countrys large volume of debt and shrinking economy.
S& Ps
downgrade of Spain comes two days after the rating agency cut the outlook on Indias longterm credit rating from stable to negative while keeping the rating itself at alt39 BBB-alt39. While Indias basic rating level is the same as Spain, S& P uses a plus (+) or minus (-) sign to show relative standing within the major rating categories. In that sense, S& P has placed India a notch below Spain.
“( W) e think risks are rising to fiscal performance and flexibility, and to the sovereign debt burden, particularly in light of the increased contingent liabilities that could materialize on the governments balance sheet,” the rating agency said in a statement.
S& P said it now appears Spain will take longer than originally expected to reduce its budget deficit and that the government in Madrid may have to provide more help to the countrys troubled banking sector.
The agency also offered a more pessimistic forecast for economic growth in Spain, calling for gross domestic product to shrink 1.5 percent this year and an additional 0.5 percent in 2013.
At the same time, the rating agency expressed confidence that ” the Spanish economy is rebalancing, and the measures the government has taken should facilitate this process”. S& P is less confident that Prime Minister Mariano Rajoy will be able to bring down Spains budget deficit to 5.8 percent of GDP this year and 3 percent of GDP in 2013.
