S&P cuts Spain credit rating to BBB-minus, near junk

Wed Oct 10, 2012 6:52pm EDT
 
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By Daniel Bases

NEW YORK (Reuters) - Standard & Poor's on Wednesday cut Spain's sovereign credit rating to BBB-minus, just above junk territory, citing a deepening economic recession that is limiting the government's policy options to arrest the slide.

The S&P downgrade comes with a negative outlook reflecting the credit ratings agency's view that there are significant risks to economic growth and budgetary performance, plus a lack of clear direction in euro zone policies.

"In our view, the capacity of Spain's political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining," S&P said in a statement.

S&P's two-notch downgrade from BBB-plus brings it in line with Moody's Investors Service's Baa3 rating. Moody's has Spain on review for a possible downgrade.

Both firms have Spain just on the cusp of junk status. Fitch Ratings has a BBB rating on Spain, one notch higher, but also with a negative outlook.

A spokeswoman at Spain's Economy Ministry told Reuters the government had no comment on the ratings action.

The country has been in recession since earlier this year, its second economic contraction in just a few years, and unemployment is stubbornly high at close to 25 percent with a return to job creation still two years away.

Falling tax revenue and rising costs of unemployment benefits are confounding the government's efforts to hit a 2012 deficit reduction target of 6.3 percent of gross domestic target agreed with the European Union.   Continued...

 
Spain's Prime Minister Mariano Rajoy looks down as he attends a ceremony at Torrejon's air base, near Madrid, October 9, 2012. REUTERS/Sergio Perez