Fitch slashes Spain’s credit rating
Ratings agency says fourth largest economy in the euro-area region is “vulnerable especially to the worsening economic conditions in the eurozone”.
Fitch Ratings downgraded the credit rating of Spain, cutting the ranking of the country’s sovereign debt, by three notches on fears the escalating debt crisis forces more pressures on the highly indebted nation, which currently accesses debt market difficultly.
Yesterday (7 June) the rating agency downgraded Spain by three notches to BBB on fears the debt crisis might intensify leaving Spain vulnerable against any sudden financial shock, citing the deteriorating financial sector which needs to be recapitalized as soon as possible.
Fitch has now the lowest rating for Spain among the other major rating agencies – S&P and Moody`s.
Furthermore, the rating agency placed the rating of Spain under negative outlook with expectations further cuts are coming soon unless European lawmakers act to save the day for Spain, which calls for help as borrowing costs keep on surging.
Fitch said in the statement yesterday that the fourth largest economy in the euro-area region is vulnerable especially to the worsening economic conditions in the euro zone, noting that Spain handles the highest unemployment rate among other eurozone nations.
The ratings agency said Spain was forecast to remain in recession through the remainder of this year and 2013 compared to Fitch’s previous expectation that the economy would benefit from a mild recovery in 2013.
It also highlighted Spain’s high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece and the “much reduced” financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support.
Fitch also clarified that Spain needs around €60 to €100bn (£48.5bn to £80.89bn) to recapitalise the banking sector, a thing that might push the debt-to-GDP ratio to 95 per cent by 2015, taking into consideration this ratio might incline as the agency assumed Spain needs €60bn for recapitalisation.