S&P downgrades Spain on weak growth outlook

 

Madrid resident: "Things are bad... prices down, sackings"

Standard & Poor's (S&P) has cut Spain's long-term credit rating by one notch, from AA to AA-, because of weak growth and high levels of private sector debt.

The ratings agency added that the country's high unemployment would remain a drag on the economy.

Last week, the Fitch agency also cut Spain's rating, a process that can raise a country's borrowing costs.

S&P's move comes as G20 finance ministers are due to meet on Friday to discuss the eurozone crisis.

On Thursday, Fitch downgraded the creditworthiness of UK banks Lloyds and Royal Bank of Scotland (RBS), and also Switzerland's UBS.

'Weaken further'

Explaining its decision to downgrade Spain, S&P said: "Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners."

It noted the "incomplete state" of labour market reform, and added: "The financial profile of the Spanish banking system will, in our opinion, weaken further."

People prepare for the protest march in Madrid

S&P also warned of a further ratings cut if Spain's economy worsens.

Its move comes as activists opposed to the Spanish government's continuing austerity measures, the so-called "indignants", are due to hold a protest march in Madrid on Saturday.

In addition to downgrading UBS, Lloyds and RBS, Fitch said it had put 12 other banks on notice that they may receive the same treatment.

The other lenders it has warned include Germany's Deutsche Bank and US group Goldman Sachs.

Fitch said it noted "increased challenges" facing the financial markets as the eurozone debt crisis and government spending cuts continue to affect banks.

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Germany lives off its exports. If people don't have any money who is going to buy our stuff?”

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Last week, Fitch fuelled concerns about the debt crisis when it downgraded Spain and Italy, citing the "intensification" of the eurozone's economic and financial problems.

Political moves

The euro fell to $1.3723 immediately following S&P's announcement, before recovering to $1.3774 in early Friday trading.

Analysts said this was due to optimism that the G20 meeting of finance ministers may announce new agreements on tackling the crisis in the eurozone.

However, other commentators say any firm decisions on the eurozone will not likely be announced until the meeting of EU leaders on 23 October.

One expected agreement will be increasing the funding and powers of the European Financial Stability Facility, the fund set up to help national governments in financial difficulty.

Measures to protect European banks with high levels of exposure to eurozone national debt are also expected to be decided.

 

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  • rate this
    +11

    Comment number 243.

    I thought the problem for Spain was a property bubble / crash not a public spending one, i.e same as Ireland.

    You can't blame the populations for that, property bubbles are caused by financial institutions who lend, invest and place value on the property / land.

    As others have said the real problem here is globalisation and the free movement of capital across borders, all masked by derivatives

  • rate this
    -3

    Comment number 240.

    I holiday in Spain at least once a year. It is obvious to anyone that has been going there a long time that the Spanish economy is facing disaster. Prices are at least as dear as in the UK and yet we have been one of the richest oil producing nations in the world for thirty years and have average wages that reflect that fact. It amazes me that Spaniards can afford to eat let alone buy a house.

  • rate this
    +6

    Comment number 168.

    My son came back from Greece last night and the prices were so high he won't go again. Greece MUST exit the Euro, devalue it's new currency to encourage tourism & thus create new jobs & basically start from scratch again. Nothing else is going to work and the same for Spain & the rest of the PIIGS. Pouring more money into a leaking bucket will not save the Euro.

  • rate this
    +29

    Comment number 165.

    I have no doubt that the Spanish govt and people are in large part responsible for their own problems, and should not expect hardworking Germans and others to bail them out.

    But like many others here, I wonder about these credit rating agencies. None of them foresaw the crunch, whilst many ordinary people and journalists did.

    Also, they are all American, deciding about Europe.

  • rate this
    +18

    Comment number 117.

    What puzzles me about Spain is that the Spanish have been over here buying up our assets - Santander acquiring Abbey & Alliance & Leicester; British Airports Authority etc - yet they are apparently on their knees at home and are a Euro disaster area. How is this possible?

 

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