Standard & Poor has issued yet another credit downgrade of Spain’s sovereign credit rating, reduced to BBB+ from A based on concerns that the nation will need to provide further fiscal support to the banking sector as the national economy continues to contract.
Spain’s short-term rating was lowered to A-2 from A-1, while the outlook on the long-term rating is negative, New York- based S&P released in an official statement ear;ier today.
As the nation’s 10-year borrowing costs have already soared to approximately70 basis points this year, Prime Minister Mariano Rajoy attempts to convince investors he can continue to control public finances in the midst of a soaring unemployment rate and a contracting economy.
Meanwhile, banks threaten to potentially disrupt the premier’s efforts as defaulted loans soar, reaching the highest levels in nearly two decades.
S&P released in the statement, “Spain’s budget trajectory will likely deteriorate against a background of economic contraction,” . And continued, “At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain’s net general govern debt could rise further.”
Questions regarding stability continue as yields on 10-year Spanish bonds recently surpassed 6% on seven trading days this month, resulting in an elevated concern that borrowing costs may soon reach levels that originally prompted bailouts for Ireland, Greece and Portugal. The rate at that time was 5.83 percent.
The ominous forecast continued, “We could also consider a downgrade if political support for the current reform agenda were to wane,” the S&P statement stated.“ Moreover, we could lower the ratings if we see that Spain’s external position worsens or its competitiveness does not continue to approach that of its trading partners, a key factor for Spain to return to sustainable economic and employment growth.”
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