There was more bad news for Europe’s attempt to rebuild its economy: Standard & Poor announced Thursday that it was downgrading Spain’s long-term sovereign credit rating by two notches – from “A” to “BBB+.” The agency also lowered Spain’s short-term sovereign credit rating to “A-2″ from “A-1,” and said the outlook on the long-term rating is negative.
In a statement, S&P said the downgrade reflects its view that the country’s budget outlook will fall amid a contracting economy, and the government will likely have to bolster the banking sector. This, the rating agency said, could lead to growing government debt.
“The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign’s creditworthiness,” S&P said.
The agency lowered estimates for Spain’s GDP growth. It said the economy would contract by 1.5 percent in 2012 and 0.5 percent in 2013. Previously, it had predicted growth of 0.3 percent in 2012 and 1 percent in 2013. Declining disposable incomes, private sector deleveraging were among reasons for the drag.
Spain is by no means the only European country with economic problems. Earlier this week, Britain, which is not a member of the euro zone, sank back into recession in the first three months of the year.