S&P lowers Spain's debt rating a notch

14 Oct 2011, 3:36 pm   -   Source: AAP
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Standard & Poor's says high unemployment and tighter financial conditions have prompted it to downgrade Spain's credit rating.

Standard & Poor's has cut Spain's credit rating by one notch to "AA-" from "AA" with a negative outlook, following downgrades to the country's top banks.

S&P said Spain's high unemployment, tighter financial conditions and "the likely economic slowdown in Spain's main trading partners" prompted the downgrade on Thursday.

"The financial profile of the Spanish banking system will, in our opinion, weaken further," S&P said, adding that while the factors that impede Madrid's recovery of domestic demand "are not unique to Spain, they impact Spain with particular force given its high level of private sector leverage, much of which is funded externally."

On Tuesday, the credit ratings of top Spanish banks, including Santander and BBVA, were downgraded on Tuesday by Standard & Poor's as well as ratings agency Fitch over poor growth prospects.

S&P had said the "tougher-than-previously-anticipated macroeconomic and financial environment in Spain" prompted its downgrade of 10 bank ratings.

Spain is slashing spending to reduce its deficit and convince markets it can stay on top of its debt and does not need a bailout.

However, the austerity drive has nearly stalled growth, with S&P and others warning Spain risks ending up in double-dip recession.

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