Fitch downgrades Spain's credit rating
Spain's economic woes deepened on Friday after Fitch downgraded the country's credit rating in a move that could provoke further panic in global stock markets.
By Angela Monaghan
Published: 9:16PM BST 28 May 2010
https://teakdoor.com/images/imported/2010/05/1051.jpg Spain has become embroiled in a debt crisis that began in Greece, but has spread to other eurozone countries with large deficits Photo: Reuters
https://teakdoor.com/images/imported/2010/05/1052.jpg Standard & Poor's lowered Spain's credit rating last month, amid concerns for the country's growth prospects Photo: Reuters
The downgrade, from AAA to AA+, was prompted by Fitch's view that Spain's growth will be hampered by a €15bn (£12.7bn) austerity package as it attempts to lower its deficit.
Fitch made the announcement after European markets had closed, but the news drove the Dow Jones in the US down 1pc to 10148.
"The downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term," said Brian Coulton, Fitch's head of EMEA sovereign ratings.
"Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA-rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+."
Spain has become embroiled in a debt crisis that began in Greece, but has spread to other eurozone countrieswith large deficits. Spain has outlined plans to reduce its 11pc deficit to 6pc next year, under the close scrutiny of the European Union, which has pushed for tough austerity measures from those countries with high debt levels. Earlier this week the Spanish parliament approved the new austerity package by a one vote margin.
Standard & Poor's lowered Spain's credit rating last month, amid concerns for the country's growth prospects. This latest move by Fitch will call into question whether the EU's strategy of forcing countries into austerity measures to create stability and appease markets has backfired.
Fitch said the inflexibility of the labour market, as well as the restructuring of Spain's savings banks, would hinder the rebalancing of the country's economy. It said Spain's government debt is likely to reach 78pc of gross domestic product by 2013, compared with less than 40pc of GDP prior to the financial crisis.
n Friday, Spain's IBEX 35 closed up almost 1pc at 9425.5, but was down 10.2pc in May as a whole. The FTSE 100 fell 6.74 points to 5188.43, down 6.57pc over the month.
Fitch said Spain's credit profile remained "very strong and consistent with its 'AA+' rating", but warned volatility in European financial and sovereign bond markets was likely to continue until a global and European recovery was firmly secured.
Fitch downgrades Spain's credit rating - Telegraph
