Spain's slide towards the risky "junk" has picked up speed. Last night US rating agency Standard & Poor's downgraded its rating on Madrid's sovereign debt to BBB- with negative outlook, one step short of being considered junk, i.e. not advisable for investors. According to the US agency, Spain “is experiencing a severe and deep economic recession which could lead to a increase in social malaise and growing tensions between the central and regional governments“. S&P's fears that the autonomous regions, where elections are approaching, will not be able to make the right decisions during the election campaign.
The economic recession is, however, the main reason for the downgrade. The estimates reported by S&P's predict a drop in GDP of 2012% in 1,8 and 2013% in 1,4. "Although exports have increased significantly", reads a note, their contribution is not sufficient to "offset the impact of depressed demand in the Spanish labor market, nor can it impact the state's fiscal results".
Meanwhile in Tokyo, where the International Monetary Fund meeting takes place, Spain remains one of the main themes. The president of the IMF, Christine Lagarde, declared that Madrid, like Greece and Portugal, "need more time" to implement their austerity policies. For the Fund, Spain will not be able to achieve a deficit of less than 3% of GDP before 2017. S&P's also denies the estimates of the Rajoy government: "It will be difficult to achieve the deficit targets given the continued fall in employment", reads a note from the rating agency. The measures implemented by Moncloa will be noticeable, but in the long term. “We believe that the government's resolve will be tested repeatedly by different sectors of the country that are influenced by its policies. Consequently we think that the the government's ability to maneuver to contain the crisis has been reduced".
For sister rating Fitch, Spain is still two steps above junk at BBB. Instead Moody's, whose judgment is already bordering on the junk level, had decided to postpone the decision on its review which will be announced by the end of the month.
