Spain’s Ratings Cut by S&P on Deficit, Bank Bailout Concern26 April 2012, by Cordell Eddings (Bloomberg)
http://www.bloomberg.com/news/2012-04-26/spain-s-ratings-cut-by-s-p-on-deficit-bank-bailout-concern.htmlSpain’s sovereign credit rating was by Standard & Poor’s on concern the nation will have to provide further fiscal support to the banking sector as the economy contracts.
Spain’s short-term rating was lowered to A-2 from A-1, while the outlook on the long-term rating is negative, New York- based S&P said in a statement today.
The nation’s 10-year borrowing costs have climbed about 70 basis points this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy.
Banks threaten to disrupt the premier’s efforts as bad loans reach the highest levels in almost two decades.
“Spain’s budget trajectory will likely deteriorate against a background of economic contraction,” S&P wrote in the statement.
“At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector.
As a consequence, we believe there are heightened risks that Spain’s net general govern debt could rise further.”
Yields on 10-year Spanish bonds surpassed 6% on seven trading days this month, boosting concern that borrowing costs may reach levels that prompted bailouts for Greece, Ireland and Portugal. The rate was 5.83%.
Budget Shortfall
The Bank of Spain said April 23 that GDP contracted 0.4% in the first quarter, tipping the nation into its second recession since 2009.
Rajoy said March 2 that that nation would miss its 4.4% deficit target and then agreed 10 days later with euro-region finance ministers to a new goal of 5.3%.
Spain’s budget shortfall will reach 6% this year and 5.7% in 2013, as the government pushes through the deepest budget cuts in at least three decades, according to forecasts from the International Monetary Fund published April 17.
Debt will reach 84% of GDP next year.
While that’s less than France and Italy, it’s up from 40% in 2008, when a real estate boom started to collapse.
“We could also consider a downgrade if political support for the current reform agenda were to wane,” the S&P statement said.
“ Moreover, we could lower the ratings if we see that Spain’s external position worsens or its competitiveness does not continue to approach that of its trading partners, a key factor for Spain to return to sustainable economic and employment growth.”
