MADRID—Standard & Poor's
said Thursday it downgraded Spain's
sovereign credit rating by two notches, citing "a challenging fiscal
outlook" amid worries on the ability of the country's regions to curb
spending.
The agency said its
outlook is negative, reflecting risks to Spain's economic growth and
budgetary performance.
The move is the latest
of a series of debt ratings downgrades for Spain,
which entered the 2008 crisis with triple-A ratings like Germany, and
has seen its credit score slip as the economy contracted.
A government spokeswoman
declined to comment on the S&P downgrade. She said senior government
officials are expected to comment after the government's weekly cabinet meeting
on Friday.
S&P last downgraded Spain's credit
rating in January, along with a number of downgrades of euro-zone countries.
The latest rating
cut comes as Spain´s central government is intensifying efforts to curb
spending by the country's powerful regional governments, which manage key
public services such as health-care and education. It also comes as European
leaders are voicing concerns about the effect of drastic austerity measures
amid a deep economic contraction and a lack of plans to foster growth and
employment.
The euro fell against
the dollar to $1.3192 from $1.3240 before the S&P release, with currency
strategists saying the common currency could fall further on worries that other
ratings firms will play catch-up.
Spain's cabinet is set Friday
to approve the fiscal report that European Union countries use to show they are
serious about sticking to their debt and deficit rules.
Earlier on Thursday,
Spanish Prime Minister Mariano Rajoy said the austerity policies implemented by
the Spanish government form part of long-standing EU commitments to have a
single currency.
"Austerity isn't a
policy of (German Chancellor) Angela Merkel," Mr. Rajoy said. "This
is the policy of the European Union, the euro, a project which we all form part
of."
S&P has often been
the first rating company to react over the deteriorating credit profiles of
countries during the past year. In August, the company stripped the U.S. of its AAA
rating, downgrading it one notch to AA-plus. In January, it dropped France's prized
AAA rating by one notch in a swath of sovereign downgrades across the
euro-zone.
The downgrade to
BBB-plus from A moves Spain into new rating territory, with the credit scores
from the other two major rating firms above that from S&P. Moody's
Investors Service, which has an A3 rating, one notch above S&P, downgraded
the country in February. Fitch Ratings rates Spain at A, two notches above
S&P.
In a news release,
S&P cited the worse-than-expected deterioration of Spain's budget
trajectory since last year, and a growing likelihood that the government will
need to provide aid for the banking sector, hit by mounting real estate losses.
S&P said it expects Spain's economy
to contract by 1.5% in 2012 and 0.5% for 2013. It previously forecast GDP
growth of 0.3% for 2012 and 1% for 2013.
Because of
higher-than-previously-expected deficit projections and other debt-increasing
items, S&P sees net general government debt at 76.6% of GDP in 2014,
against its prior estimate of 64.6% of GDP.
Robert Lynch, head of
currency strategy for the Americas
at HSBC Bank, said that while the timing of the downgrade was a surprise, he
noted it comes after weeks of deterioration in Spanish bond prices amid worries
about the country's fiscal outlook. The gap between the yield on Spanish 10-year
debt and comparable German bonds has risen to more than 4 percentage points
from around 3 percentage points in early February.
"It's certainly
important when you talk about Spain's
debt dynamics and the concerns that S&P voiced," says Mr. Lynch.
"But it's not saying anything that many people in the market haven't
already recognized."he report may include new details on Spain's government forecasts for
coming years. The Commission will scrutinize it for any signs of wavering on
the government's commitment to lower its budget deficit to 5.3% of gross
domestic product this year. If the commission wants changes, often the case
with stability reports, it is expected to propose them in the coming weeks.
The so-called stability
report details plans for tens of billions in spending cuts and tax increases
the government hopes will enable it to achieve fiscal targets set by the
European Commission, the EU executive body that polices fiscal discipline in
the 27-nation bloc.
The European Commission
the EU executive body that polices fiscal discipline in the 27-nation bloc. has
given Spain
until April 30 to submit a report on further budget cuts.