Oil ends lower, hit by Spain's debt downgrade
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- Fitch Ratings on Friday cut Spain's credit rating from AAA to AA+, citing expectations that efforts to reduce public- and private-sector debt levels would significantly slow economic growth over the medium term.
Fitch said Spain's ratings outlook was stable.
"Despite government debt and associated interest costs remaining within the AAA range, Fitch anticipates that the economic adjustment process will be more difficult and prolonged than for other economies with AAA-rated sovereign governments, which is why the agency has downgraded Spain's rating to AA+," said Brian Coulton, head of EMEA sovereign ratings at the agency.
The move, announced after the close of European markets, put added pressure on U.S. stocks. The euro /quotes/comstock/21o!x:seurusd ( CUR_EURUSD 1.2289, -0.0073, -0.5905%) remained lower versus the U.S. dollar at $1.2302, down around 0.3% on the day.
But economists said the downgrade wasn't a surprise.
Spain moved into the spotlight in the long-running euro-zone sovereign debt crisis this week as worries mounted about the country's banking sector after the Bank of Spain stepped in to rescue CajaSur, a failed regional lender.
The Spanish parliament earlier this week approved a controversial 15 billion euro ($18 billion) package of austerity measures by a single vote. The measures include cuts to pay for civil servants and a pension freeze. Read about Spain's austerity plan.
"All in all, no big news, and Spain losing AAA status is therefore not overly surprising," said Tullia Bucco, economist at UniCredit Bank in Milan. "While recent austerity measures are credible and go in the right direction, growth prospects remain investors' main concern."
Standard & Poor's last month downgraded Spain to AA from AA+. Read about S&P's downgrade.
Fitch said Spain's rigid labor market and the restructuring of regional and local savings banks, or cajas, will hinder the pace of adjustment, particularly in the aftermath of the nation's collapsed property bubble.
The agency said the government's fiscal consolidation plan is "ambitious and supported by specific and detailed measures, some of which have already been implemented." It also noted what it called Spain's track record of responsible public finances and an "unblemished" debt-servicing record.
But the recovery is likely to underperform the government's expectations.
Servicing Spain's foreign debt will be a source of strain, while the costs of restructuring the caja sector could be "substantial," although likely to remain significantly less than the €9 billion set aside under the governments Fund for Restructuring of Banks, Fitch said.
The stable outlook for Spain's sovereign rating reflects expectations the country's credit profile "will remain very strong and consistent with its AA+ rating, even in the event of some slippage relative to official fiscal targets," the agency said.
William L. Watts is a reporter for MarketWatch in London.