S&P slashes Spain's debt rating

By Chavon Sutton, staff reporter


NEW YORK (CNNMoney.com) -- Standard and Poor's downgraded the sovereign debt ratings of Spain to a lower investment grade status Wednesday, citing "risks to budgetary position" for the troubled European nation.

Spain's long-term sovereign debt rating was reduced to "AA" from "AA+." The short-term rating was left unchanged at "A-1+."

The downgrade primarily reflects S&P's revision of the country's economic outlook. The ratings agency reduced Spain's 2010-2016 economic growth forecast to an annualized rate of 0.7% from a previous 1%.

"We now believe that the Spanish economy's shift from a credit-fueled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed," said Marko Mrsnik, S&P credit analyst, in the report.

The ratings action follows Tuesday's downgrade of both Greece and Portugal, which resulted in a precipitous decline in the U.S. stock market.

"This is an expected reaction, because for sometime now, Spain has been in doldrums," said Andreas Carbacho-Burgos, an economist for Moody's Economy.com. "It was not sharing in the output recovery that was happening in Germany, France and Britain."

Other so-called PIIGS nations -- Portugal, Italy, Ireland and Spain -- have seen their borrowing costs spike in recent weeks amid growing concerns that Greece's debt problems could spread. Greek bond yields hit an all-time high Wednesday.

S&P said it considered the possibility that Spain's public and private borrowing costs could remain elevated throughout 2011, further slowing the nation's economic recovery.

"Our conclusion is that challenging medium-term economic conditions will further pressure Spain's public finances," said Mrsnik. "Additional measures are likely to be needed to underpin the government's fiscal consolidation strategy."

The ratings agency placed the country on negative outlook, which implies that future downgrades could be in the offing.

Many analysts say that problems in Europe are unlikely to disappear quickly, and drastic measures in Greece may be needed to put troubled nations back on solid footing.

"Greece is going to have to undergo a massive bailout, which Germany's hesitant to give, or some sort of default," said Carbacho-Burgos.

Although the idea of a default spooks investors, who recall the Argentine debt crisis earlier in the decade, Carbacho-Burgos said an orderly default, managed by the European Union and International Monetary Fund, would be more likely.

"I don't think there would be [a unilateral default]," he said. "That typically happens when there's a change in government, but Greece's prime minister is relatively new and has shown commitment to service debt with help from a bailout."  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.96%3.94%
15 yr fixed3.08%3.03%
5/1 ARM3.33%3.33%
30 yr refi4.04%4.02%
15 yr refi3.16%3.09%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,181.00 206.69 1.22%
Nasdaq 4,566.23 17.00 0.37%
S&P 500 1,994.37 12.07 0.61%
Treasuries 2.31 -0.01 -0.39%
Data as of 2:27pm ET
Company Price Change % Change
Facebook Inc 74.37 -1.49 -1.96%
Bank of America Corp... 17.10 0.11 0.65%
Intel Corp 32.74 -1.18 -3.48%
Apple Inc 107.10 -0.24 -0.22%
Avon Products Inc 10.02 -0.94 -8.58%
Data as of 2:12pm ET

Sections

An annual federal government census found about 578,000 homeless individuals nationwide, down about 2% from last year. More

Plasma TV production is about to end, as LG says it is going to stop producing the once-popular TV sets. More

San Francisco-based Tumml is an accelerator fostering 'urban impact start-ups' that aim to tackle civic problems -- and turn a profit. More

Amy Kukec thought leaving her abusive husband would be the beginning of a new life, but so far she's hit one debilitating financial roadblock after another. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.