Ratings agency Standard & Poor have cut its credit rating on Spain by two notches, downgrading it from A to BBB-plus.
The agency cited expectations that Mariano Rajoy’s governments finances will deteriorate further during 2012 due to the contracting economy and the struggling banking sector.
The agency also placed a negative outlook on the country and said the situation in Spain could deteriorate further without intervention from Europe.
“We think risks are rising to fiscal performance and flexibility, and to the sovereign debt burden, particularly in light of the increased contingent liabilities that could materialise on the government’s balance sheet,” S&P said in a statement.
This was the first downgrade since Rajoy’s Partido Popular took office in December 2011.
Spain’s economy ministry said the downgrade did not reflect the impact that planned reforms would have on reactivating the economy which fell into technical recession following two consecutive quarters of contraction.
Speaking to Reuters a spokesperson said “They haven’t taken into consideration the reforms put forward by the Spanish government, which will have a strong impact on Spain’s economic situation.”
The government have already announced 50 billion euros of cuts and reforms, including efforts to support the many banks drowning under bad property loans.
S&P called on euro zone countries to better manage the debt crisis adding that the Spanish outlook could get worse without strong measures being introduced at a European level.
Other ratings agencies also have Spain marked with a negative outlook. Moody’s Investors Service rates Spain as A3 while Fitch Ratings rates the country as A.