Spain Other


All three major rating agencies downgrade Spain

On 18 October, Moody's downgraded Spain's credit rating from Aa2 to A1 with a negative outlook, citing the country's vulnerability to the Eurozone debt crisis. The decision followed similar downgrades by Standard & Poor's and Fitch, on 14 and 7 October respectively. While S&P's downgrade from AA to AA- alluded to weak growth prospects, Fitch's cut from AA+ to AA-, with a negative outlook, cited risks to fiscal consolidation arising from the budgetary performance of some regions and poor medium-term growth prospects. These downgrades add concerns to Spain's ability to meet its fiscal deficit target. The People's Party (PP) leader Mariano Rajoy, who, as polls indicate, will win an outright majority in the 20 November presidential elections, pledged stricter budget laws, spending limits for regional governments, and tax breaks to encourage companies to hire workers and become more competitive. While the ruling Socialist Party (PSOE) maintains its commitment to meet the fiscal deficit target of 6.0% of GDP this year, it acknowledges that lack of fiscal discipline in regional governments may be an obstacle towards fiscal consolidation. The current administration plans to reduce the fiscal deficit to 4.4% of GDP in 2012 and to 3.0% of GDP in 2013.


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