Moody’s Investors Service downgraded Spanish government debt yesterday, joining two other major credit rating agencies who have taken similar steps out of concern over the country’s public finances.
The London-based agency lowered the rating by one notch, from Aaa to Aa1, with a stable outlook.
The agency said it was acting because of concerns over Spain’s weak economic growth prospects and what it called considerable deterioration in the government’s financial strength.
The other two agencies, Standard & Poor’s (S&P) and Fitch, downgraded Spanish debt in late April and late May, respectively.
Spain has been a focus of market concern that its bloated deficit and weak economy might eventually require a bailout of the kind that saved Greece from bankruptcy in May.
“One of the key drivers for Moody’s decision to downgrade Spain’s rating to Aa1 is its weak growth prospects and the challenge that this presents for fiscal consolidation,” said Kathrin Muehlbronner, a Moody’s vice president and lead analyst for Spain.
“Over the next few years, the Spanish economy is likely to grow only by about 1 percent annually on average. Growth rates in the rest of the EU are likely to be higher, but also sluggish. Moody’s expects growth to average around 2 percent for the UK, 1.5 to 2 percent for Germany and around 1.5 percent for France in the coming years,” she said in a statement.
As another reason for the downgrade, Moody’s cited “considerable deterioration of the Spanish government’s financial strength, as reflected in a more pronounced fiscal deterioration compared to Aaa-rated sovereigns.”
Moody’s also cited worsening debt affordability, or interest payments as a share of revenues, and significant borrowing requirements. It said this means the government remains vulnerable to market volatility.
Meanwhile, S&P said on Wednesday that G20 countries were not at risk of a rating downgrade, despite large public deficits in most of the richest member nations.
“Our fiscal forecasts continue to show high deficits for most high-income G20 members,” S&P said in a report, Credit Fundamentals Remain Intact for G20 Sovereigns.
Compared with the last report on G20 credit, in April, the agency has “somewhat improved” its deficit forecasts for Britain, following government actions to redress public finances, and for Australia, whose revenue has held up better than expected,” said John Chambers, chairman of S&P’s sovereign rating committee and the report’s lead analyst.
Analyses of each of the 19 countries and the EU, which make up the G20, resulted in mostly stable outlooks, “although those on Turkey and Indonesia are positive and those on the UK, Japan and South Africa remain negative.”
The only rating change since the April 20 report was an upgrade on Argentina’s credit, to “B.”
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