The ratings agency Fitch has sharply downgraded Spain’s credit rating, citing the growing banking crisis in the eurozone’s fourth-biggest economy.
Spain’s government debt was cut by three notches to BBB, above junk in Fitch’s ranking scheme, and placed on a negative outlook, meaning the nation remained at risk of a further downgrade.
“The dramatic erosion of Spain’s sovereign credit profile and ratings over the last year in part reflects policy missteps at the European level that, in Fitch’s opinion, have aggravated the economic and financial challenges facing Spain as it seeks to rebalance and restructure the economy,” Fitch said in a statement.
“Spain is forecast to remain in recession through the remainder of this year and 2013, compared to Fitch’s previous expectation that the economy would benefit from a mild recovery in 2013,” the agency said.
“The negative outlook primarily reflects the risks associated with a further worsening of the eurozone crisis, notably contagion from the ongoing Greek crisis,” it said.
Fitch said the downgrade reflected higher than expected likely cost of restructuring Spain’s troubled banking sector, which is now estimated to be around 60 billion euros ($75 billion), or as much as 100 billion euros “in a more severe stress scenario.”