Friday, October 14, 2011

S&P downgrades Spain by one notch on weak growth outlook

Ratings agency Standard and Poor's downgraded the long-term credit rating of Spain by one notch on Friday, knocking the euro down by a third of U.S. cent as it followed hard on the heels of a similar downgrade by Fitch last week.

S&P cited Spain's high unemployment, tightening credit and high level of private-sector debt among the reasons for the downgrade of the nation's creditworthiness to AA- from AA.

S&P and Fitch now rate Spain as AA- and both also have signalled further possible downgrades.

"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," S&P said in a statement.

It also noted the "incomplete state" of labour market reform and said Spain's banking system would continue to weaken with "problematic assets" rising further.

The euro edged lower in Asian trade after S&P's move, though it still remained on track for its biggest weekly rally since January. It last traded at $1.3741 , having shed around a third of cent.

"We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain's fiscal position significantly deviates from the government's budgetary targets, or additional labor market and other growth-enhancing reforms are delayed," S&P added.

Earlier, Fitch cut credit ratings or signalled possible downgrades for several major European banks. It downgraded UBS. ' Reuters


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