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Tuesday 01st of June 2010
May 30, 2010    

Further blow for Spain as Fitch cut rating

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by Kay Murchie
Further blow for Spain as Fitch cut rating

Fitch Ratings cut Spain’s credit rating from the maximum AAA to AA+ on Friday and the news comes just a week after one of the country’s banks, CajaSur, was bailed out.

Standard & Poor’s cut Spain’s credit rating a month ago and comes as the country has been forced to implement tough austerity measures in order to tackle the country’s deficit, which is currently 11% of GDP.

Meanwhile, commenting on its decision, Fitch said: ”The downgrade reflects our assessment that the process of adjustment to a lower level of private sector and external indebtedness with materially reduce the rate of growth of the Spanish economy over the medium-term.”

Moody’s remains the only agency that has not downgraded Spanish sovereign credit rating and still gives it a rating of AAA.

In the meantime, on Friday it emerged that half a dozen regional Spanish savings banks are in talks with alliances to avoid insolvency.

Many savings banks in Spain have been heavily exposed to Spain’s property market crash.

The housing market collapse has also had an impact on the key construction industry with thousands of job losses and Spain’s unemployment currently stands at 20% - double the euro zone average.

Also last week, the International Monetary Fund (IMF) issued a severe warning to the Spanish economy suggesting it needs “far-reaching” reforms to ensure its recovery.

The IMF said: “The challenges are severe – a dysfunctional labour market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anaemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness.”

The Spanish economy, which is the euro zone’s fourth largest, exited recession in the first quarter of the year after experiencing growth of just 0.1% – ending a run of seven consecutive quarters of contraction.

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