Portugal is downgraded

FITCH Ratings cut Portugal’s sovereign credit rating by one notch to AA- yesterday, citing budgetary underperformance in 2009 and warning that further underperformance this year and next could cause another downgrade.

Fitch said the government’s long-term budget austerity plan was broadly credible and it did not expect political instability to upset the passage of the necessary legislation.

But it saw a “significant” risk of macroeconomic disappointment with knock-on effects for the deficit particularly in 2012-2013. In the meantime, the agency said the likelihood of Portugal facing a liquidity crisis was low.

“The downgrade has more of an impact on the wider sovereign debt crisis, rather than Portugal at the moment,” said Peter Chatwell, bond analyst at Credit Agricole in London.

The Portugal downgrade comes on top of persistent worries about a default by Greece that has rattled global markets in recent months.