S&P downgrades Spain on weak growth outlook
14 Oct 2011
Standard & Poor's (S&P) has cut Spain's credit rating by one notch, from AA to AA-, because of weak growth and high levels of private sector debt.
S&P expects the Spanish economy to grow at about 1 per cent in real terms next year, down from the 1.5 per cent, earlier forecast in February.
S&P also sees the quality of assets held in Spain's financial institutions worsening after a separate review of its banking system found it created additional challenges to the broader economy.
Spanish monetary and financial sector institutions accounted for a little more than half of Spain's external debt at the end of the second quarter, S&P said, leaving the economy vulnerable to sudden shifts in financing costs.
S&P added that the country's high unemployment would remain a drag on the economy. It said it had based the latest downgrade on Spain's economic situation rather than on political, external, fiscal or monetary concerns.
Last week, Fitch had also cut Spain's rating, a process which will increase Spain's borrowing costs. (See: Fitch cuts Italy, Spain ratings; says outlook negative)
