October 19, 2011
Spanish Debt Downgrade Points to Uncertainty Over Euro Crisis
By RAPHAEL MINDER
MADRID — Moody’s Investors Service raised the pressure on Spain late Tuesday when the credit rating agency downgraded the country’s long-term sovereign rating by two notches and placed it on watch for further downgrades.
Moody’s cut Spain’s rating to A1 from Aa2, citing concerns over debt levels in the Spanish banking and corporate sectors, as well as broader concerns about weakening growth among countries that share the euro.
The decision followed similar ones by Standard & Poor’s and Fitch Ratings. Last Thursday, S.&P. lowered Spain’s long-term debt rating by one notch, to AA minus from AA, because of the country’s poor growth prospects and troubled banks.
“Spain’s large sovereign borrowing needs as well as the high external indebtedness of the Spanish banking and corporate sectors render it vulnerable to further funding stress,” Moody’s wrote in a note.
The government in Madrid has pledged to lower its public deficit to 6 percent of gross domestic product this year from 9.3 percent of G.D.P. in 2010. It has stuck to a growth forecast of 1.3 percent this year — a figure that also underpinned its 2011 budget deficit plan — even though most economists now expect Spain to post growth of about 0.7 percent this year.
Elena Salgado, the finance minister, also recently dismissed a forecast by Goldman Sachs that Spain would fall back into recession at the start of 2012.
Moody’s, meanwhile, said that it expected growth next year of “1 percent at best,” compared with earlier expectations of 1.8 percent