Category: Markets / Finance / October 11, 2012 5:07 PM EDT
Moody’s has promised to announce the results of a review of Spain’s finances for a possible downgrade this month.
Standard & Poor's cut Spain's sovereign credit rating to BBB-minus, just above junk territory, on Wednesday, citing a deepening economic recession that is limiting the government's policy options.
The S&P downgrade comes with a negative outlook reflecting the credit ratings agency's view that there are significant risks to economic growth and budgetary performance, plus a lack of clear direction in euro zone policies.
The country has been in recession since earlier this year, its second economic contraction in just a few years, and unemployment hit 25 percent with a return to job creation still two years away.
Falling tax revenue and rising costs of unemployment benefits are confounding the government's efforts to hit a 2012 deficit reduction target of 6.3 percent of gross domestic target agreed with the European Union.
Both the International Monetary Fund and Spain's own Central Bank have cast doubt on the savings envisioned in Prime Minister Mariano Rajoy's 2013 budget, saying they are based on a too-rosy outlook for the economy.
Rajoy's center-right People's Party has an absolute majority in parliament and so far has been able to pass spending cuts and economic reforms without any problem.
However, street protests have increased in recent months as Spaniards revolt against huge public bailouts for the country's crippled banks, while social benefits are cut.
S&P's two-notch downgrade from BBB-plus brings it in line with Moody's Investors Service's rating. Both firms have Spain just on the cusp of junk status, and Moody's has Spain also on review for a possible downgrade.