S&P downgrades Spain’s credit rating as fears over bank bailouts grow

IT r

IT rating agency Standard & Poor’s (S&P) last night slashed Spain’s credit rating by two notches to BBB+, warning the beleaguered country will be forced to increase its debt burden to support its ailing banks.

S&P also put its credit on negative outlook, indicating a high risk of further downgrades, as Spain struggles to curb spending.

S&P said the move reflected its view of the “significant risks” to Spain’s economic growth and the “impact this will have on its creditworthiness.”

S&P now expects Spain’s GDP to contract by 1.5 per cent in 2012 and 0.5 per cent for 2013. It previously forecast GDP growth of 0.3 per cent for 2012 and one per cent for 2013.

The move is the latest in a series of debt ratings downgrades for Spain. S&P rival Moody’s also cut Spain’s credit rating by two notches in February.

The downgrade had an immediate impact on the euro, which fell sharply in early Asian trade over fears the Eurozone debt crisis was set for a fresh flare-up. The euro skidded to $1.3179, from $1.3236, pulling away from a three and a half week high of $1.3264.

In its statement on Spain, S&P also slammed Europe’s handling of the debt crisis, which it said “continues to lack effectiveness.”