Standard & Poor’s cut late Wednesday Spain’s sovereign credit rating to BBB-minus and just one notch above junk status.
This is the third time this year that S&P has cut its ratings for Spain.
The ratings agency said the reason for its decision was the worsening economic recession that is handicapping the Spanish government’s ability to attack the economic crisis.
The S&P downgrade reflects the ratings agency’s negative outlook, which sees significant risks to economic growth and budgetary performance.
According to S&P, “the capacity of Spain’s political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining.”
The ratings cut is seen as possibly forcing Spain’s hand in asking for a EU bailout – something to date it has refused to do – and which recently even Germany had asked Spain to refrain from doing.
Rival ratings agency Moody’s also has Spain at a similar rating just above junk status and is expected to release an update on its rating later this month.
According to RT, financial institutions were not at all surprised by such a development.
“The Spanish government itself has come out and said, ‘look, come 2013, our debt-to-GDP ratio is going to be approximately 91%,’” Margaret Bogenrief from financial advisory ACM Partners told RT. “Debt is growing. There is no internal growth within the Spanish economy to boost those GDP numbers.”
“So as far as everyone focusing on what the S&P and other rating agencies are saying,” Bogenrief said, “I think they’re actually reflecting the reality that the Spanish economy is not going anywhere good for the rest of 2012 and into 2013.”