Standard and Poor's has reduced Spain's debt rating for the second time since January. Madrid may see its debt burden grow as it slips back into economic recession and contemplates lending more help to banks.
The US credit rating agency Standard & Poor's (S&P) has slashed Spain's sovereign debt rating by two notches, citing Madrid's slip back into recession as a factor that could exacerbate its budget woes.
S&P bumped Spain's rating down from "A" to "BBB+" and gave the country a negative outlook, suggesting that its rating could be downgraded again. The agency Moody's had taken a similar step in February.
Although S&P had previously forecast growth for Spain, it reversed its prediction, saying that the economy would likely contract by 1.5 percent this year.
"We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections," the rating agency said in a release.
S&P cited falling wages among Spaniards, the business sector's focus on paying off debt at the expense of investment, and the government's austerity measures as factors that would slow economic growth. In turn, Spain's debt was likely to grow as its economy contracted. The Spanish central bank confirmed this week that Spain is in recession for the second time in three years.
The Spanish government was also likely to have to give more assistance to the country's banking sector, a further strain on an already bleak fiscal outlook, according to S&P.
The country's jobless rate rose again on Friday to 24,4 percent, making it one of the highest in the world.
Spanish stocks also fell on Friday following the S&P downgrade.
S&P continued to criticize the 17-member eurozone's crisis fighting measures for lacking effectiveness. The rating agency said that credit conditions, and thereby the economic outlook in Spain, would deteriorate unless "offsetting eurozone policy measures are implemented."
Spain, as the eurozone's fourth largest economy, has raised concern among financial analysts that it could be forced to seek a bailout like Greece, pushing the eurozone into a downward economic spiral.
slk/av (AP, AFP)