Standard & Poor’s cut Spain’s credit rating yesterday, sending the euro lower and underlining the challenges facing Europe’s big powers as they prepare to meet G20 counterparts over the eurozone debt crisis.
S&P, whose move mirrored that by fellow ratings agency Fitch last week, cited high unemployment, tightening credit and high private sector debt among reasons for cutting the nation’s long-term rating to “AA-” from “AA.”
At above 21 percent, Spanish unemployment is the highest in the EU, reflecting a stagnant economy, the collapse of a decade-long housing boom and cuts aimed at reeling in a public sector deficit that reached 11.1 percent of GDP in 2009.
Photo: EPA
High yields on Spanish government bonds point to concerns that it could be the next eurozone economy to need bailing out after Greece, Ireland and Portugal, although an unpopular austerity program has gone some way to convincing investors that its deficit will fall to 6 percent of GDP this year as promised.
S&P announced the downgrade as finance ministers and central bank chiefs from the world’s 20 biggest economies were due to meet later yesterday in Paris amid pressure to find an urgent and convincing solution to the deepening debt crisis.
“Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” S&P said.
It also noted the “incomplete state” of labor market reform and the likelihood of further asset deterioration for Spain’s banks, and downgraded its forecast for Spanish economic growth next year to about 1 percent.
In February, S&P had forecast 1.5 percent growth for next year.
Like Fitch, which also now rates Spain at “AA-,” S&P signaled further possible downgrades for Spain, saying there was still a risk that the eurozone’s fourth-largest economy could slip into recession next year, with a 0.5 percent contraction.
“We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain’s fiscal position significantly deviates from the government’s budgetary targets, or additional labor market and other growth-enhancing reforms are delayed,” S&P said.
The euro dipped in Asian trade after the downgrade, though it still remained on track for its biggest weekly rally since January. It last traded at US$1.3753, having shed around a third of cent.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
ARTIFICIAL INTELLIGENCE: The chipmaker last month raised its capital spending by 28 percent for this year to NT$32 billion from a previous estimate of NT$25 billion Contract chipmaker Powerchip Semiconductor Manufacturing Corp (力積電子) yesterday launched a new 12-inch fab, tapping into advanced chip-on-wafer-on-substrate (CoWoS) packaging technology to support rising demand for artificial intelligence (AI) devices. Powerchip is to offer interposers, one of three parts in CoWoS packaging technology, with shipments scheduled for the second half of this year, Powerchip chairman Frank Huang (黃崇仁) told reporters on the sidelines of a fab inauguration ceremony in the Tongluo Science Park (銅鑼科學園區) in Miaoli County yesterday. “We are working with customers to supply CoWoS-related business, utilizing part of this new fab’s capacity,” Huang said, adding that Powerchip intended to bridge
Microsoft Corp yesterday said that it would create Thailand’s first data center region to boost cloud and artificial intelligence (AI) infrastructure, promising AI training to more than 100,000 people to develop tech. Bangkok is a key economic player in Southeast Asia, but it has lagged behind Indonesia and Singapore when it comes to the tech industry. Thailand has an “incredible opportunity to build a digital-first, AI-powered future,” Microsoft chairman and chief executive officer Satya Nadella said at an event in Bangkok. Data center regions are physical locations that store computing infrastructure, allowing secure and reliable access to cloud platforms. The global embrace of AI
Qualcomm Inc, the world’s biggest seller of smartphone processors, gave an upbeat forecast for sales and profit in the current period, suggesting demand for handsets is increasing after a two-year slump. Revenue in the three months ended in June will be US$8.8 billion to US$9.6 billion, the company said in a statement Wednesday. Excluding certain items, earnings will be US$2.15 to US$2.35 a share. Analysts had projected sales of US$9.08 billion and earnings of US$2.16 a share. The outlook signals that the smartphone market has begun to bounce back, tracking with Qualcomm’s forecast that demand would gradually recover this year. The San