Fitch Downgrade on Spain Precedes Volatile Trading Ahead of Holiday Weekend
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Under the weight of harsh economic times in the euro zone, Fitch Ratings cut Spain’s credit status to AA+ from AAA today, citing the the strict austerity passed this week in holding back the nation’s economic recovery.
"The downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness with materially reduce the rate of growth of the Spanish economy over the medium-term," Fitch's analyst Brian Coulton said in a statement.
With the downgrade, Fitch added that the outlook on Spain is stable, given the country’s strong commitment to shedding its budget deficit. At the current pace, Spain’s debt is likely to reach 78 percent of its gross domestic product by 2013, up from 40 percent at the onset of the global recession in 2007.
The ratings agency sees the country’s credit profile remaining very strong and consistent, and even with some setbacks on the way to official fiscal targets, Spain will continue to be solid with its AA+ rating.
"Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+," Coulton added.
Spain has already endured a downgrade from Standard and Poor’s last month, as the country’s government is attempting to reassure the markets that it will not end up seeing a debt crisis similar to that of Greece.
S&P’s downgrade was one notch drop to AA from AA+, while adding a negative outlook at the end of April.
Moody’s is the only one of the three major ratings agencies to not cut Spain’s rating thus far, and maintains a AAA rating on the country.
Fitch said it believes that the economic recovery in Spain will be “more muted” than its government has forecast.
"The downgrade reflects Fitch's assessment that the process of adjustment to a lower level of private sector and external indebtedness with materially reduce the rate of growth of the Spanish economy over the medium-term," Fitch's analyst Brian Coulton said in a statement.
With the downgrade, Fitch added that the outlook on Spain is stable, given the country’s strong commitment to shedding its budget deficit. At the current pace, Spain’s debt is likely to reach 78 percent of its gross domestic product by 2013, up from 40 percent at the onset of the global recession in 2007.
The ratings agency sees the country’s credit profile remaining very strong and consistent, and even with some setbacks on the way to official fiscal targets, Spain will continue to be solid with its AA+ rating.
"Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+," Coulton added.
Spain has already endured a downgrade from Standard and Poor’s last month, as the country’s government is attempting to reassure the markets that it will not end up seeing a debt crisis similar to that of Greece.
S&P’s downgrade was one notch drop to AA from AA+, while adding a negative outlook at the end of April.
Moody’s is the only one of the three major ratings agencies to not cut Spain’s rating thus far, and maintains a AAA rating on the country.
Fitch said it believes that the economic recovery in Spain will be “more muted” than its government has forecast.
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