Spain hit by fresh debt downgrade: S&P reduces credit rating for a second time



S&P downgrades Spain one notch from AA to AA-

Mirrors last week's move by Fitch



High unemployment, tightening credit and high private-sector debt blamed

Warning issued that further downgrades are likely

Worried: Spain's Prime Minister Jose Luis Rodriguez Zapatero has seen his country's credit rating slashed by a second rating agency

Europe’s ailing economy took another hit yesterday as Spain’s credit rating was downgraded, sparking more fears about the debt crisis.



The fourth-largest country in the eurozone is struggling with high unemployment and protesters are due to gather in Madrid today to rally against the government’s unpopular austerity measures.



Ratings agency Standard and Poor’s reduced Spain’s long-term credit rating one notch, from AA to AA.



It added that its outlook on the country is ‘negative’, suggesting its assessment could be lowered again at some point.



Explaining its decision, Standard and Poor’s said: ‘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.’



It also noted the ‘incomplete state’ of labour market reform and the likelihood of further asset deterioration for Spain’s banks.

It downgraded its forecast for Spanish economic growth in 2012 from 1.5 per cent to about 1 per cent.



But Spain fought back, blaming the move on financial turbulence in other EU countries. Finance minister Elena Salgado insisted that the rating was still ‘excellent.

Shaky: The euro dipped in Asian trade after the downgrade, though it still remained on track for its biggest weekly rally since January - it last traded at $1.3753, having shed around a third of cent

The euro fell after the Standard and Poor’s announcement but quickly recovered the lost ground.



Analysts attributed the optimism to an expectation that a meeting of G20 finance ministers in Paris late yesterday might lead to an agreement on tackling the crisis.



Global stock markets also responded positively to the hope that Europe is on track to resolve its debt woes. The mood was further lifted by strong U.S. retail sales figures.



Last week the Fitch agency cut Spain’s rating, a process that can raise a country’s borrowing costs.



