NEW YORK — S&P – Standard & Poor’s downgraded the credit rating of Spain by 2 on Thursday – the latest indication that the crisis in Europe is again gaining momentum.
S&P says that the downgrade from A to a BBB+ for Spain is a reflection of their view of the mounting risks to the countries’ net general government debt as a part of GDP in view of the contracting economy.
Particularly, Spain’s new credit rating encumbers growth, including private-sector deleveraging, declining incomes, and the application of the government’s austerity program. Additionally, it raises concerns that the government might have to give more support to the distressed banking sector.
Recently, Spain revealed that its budget for 2011 was a lot bigger than anticipated and advised that the government might not meet 2012 financial markets.
Prime Minister Rajoy, has been in power since December 2011 and proposed a €27 billion austerity program. However, the economy which suffers from high unemployment rates as well as banking sector problems, which is attached to the real estate market, has shifted back into a recession.
Although authorities say that the country can get away from a bailout, Spanish bond yields have recently increased sharply as investors are fearing that the nation will need some type of external support.
Currently, Spain is rated equally as companion countries Italy and Ireland, which are also in fiscally-troubled situations. S&P says that it is expecting Spain’s GDP to contract by 1.5 percent this year and 0.5 percent next year.