Spain’s economic situation worsened today after the credit ratings agency Standards and Poor reduced the encumbered country’s credit rating by two points.
The move could not have come at a worse time as it is expected to force up the cost of borrowing for Madrid leaving investors worried about its ability to pay off its debts. The move has caused Spain’s status to drop from an A to BBB+.
S&P said: “The downgrade reflects our view of mounting risks to Spain’s net general government debt as a share of GDP in light of the contracting economy, in particular due to the deterioration in the budget deficit trajectory for 2011-2015, in contrast with our previous projections, and the increasing likelihood that the government will need to provide further fiscal support to the banking sector.
“Consequently, we 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 materialise on the government’s balance sheet,” it said.
The news will no doubt worry other European leaders as it is feared investors may withdraw support for the embattled nation, leaving the way open for the need of another rescue fund from the IMF and a multi-billion euro rescue deal from Brussels.
The other credit agencies have also put Spain on a negative outlook with Moody’s rating Spain at A3 and Fitch Ratings has it at A. After Greece, Spain is now regarded as one of the sick men of Europe, with fears that the country is teetering on the edge of bankruptcy and its economy is expected to shrink by up to 2.7% this year.
Spain’s finance minister Luis de Guindos has said “Nobody has asked Spain either officially or unofficially to turn to Europe’s bailout mechanisms, this is not the real cure for the problems and the volatility of the market, I don’t think that we need any further liquidity injections after the two LTROs that the ECB has implemented over the last three or four months.”
Elsewhere in the Spanish economy, figures have been released that show an increase in the already high unemployment rate, as of today it is standing at a massive 24.4% or 5.6 million people, meaning that one in four Spaniards is out of a job. Shockingly 50% of the young are out of work.
The bank, Banco popular has reported that its profits are down by 46%. Retail sales are also down by 3.7% compared to last month, meaning that sales have fallen for 21 months in row.
Today’s news shows that Spain’s recession is starting to bite hard with no clear way to solve the crisis.
The Pound to Euro exchange rate is currently trading at 1.227
The Pound to US Dollar exchange rate is currently trading at 1.618
The Euro to US Dollar exchange rate is currently trading at 1.318