Credit ratings agency Standard & Poor’s (S&P) warned Spain on Friday that its weak economic growth prospects could undermine its plan to rein in its budget deficit, making a debt downgrade even more likely.
Though short of the levels being posted in Greece, investors are increasingly worried about Spain’s budget deficit — and skeptical about the government’s ability to push through sharp cutbacks to right the situation.
The government has announced both tax rises and spending cuts — not all yet specified — to reduce its deficit back towards the 3-percent-of-GDP limit that euro rules prescribe.
In a statement, S&P said Spain’s deficit would likely remain higher than 5 percent of the country’s GDP to 2013 against the government forecast of 3 percent, and that as a result the debt burden could rise to more than 80 percent of GDP by 2012.
S&P said it also expects much weaker economic growth than the Spanish government and that there was a “significant implementation risk” with regard to the current plan to reduce the deficit, which was estimated at 11.4 percent of GDP for last year.
Spain, which has still to get out of recession, is expected to grow by an average annual rate of 0.6 percent between this year and 2013, according to S&P, much less than the Spanish government’s forecast of 1.5 percent.
S&P said it saw downside risks relating to the government’s assumptions on revenue collection in particular.