Fitch Ratings has downgraded Spain's long-term credit rating to BBB, leaving it two notches from junk. The rating firm cited the cost of recapitalising the country's banking industry and a lengthening recession for the move.
Spain, which saw its rating lowered from `A', would need around €100 billion to bolster its banking system, as against its earlier estimate of about €30 billion, Fitch said yesterday in London.
The Spanish economy was set to continue to be in recession in 2013, the ratings agency added. According to earlier forecasts, a recovery was on the cards next year.
Budget minister Cristobal Montoro said earlier this week that Spain was shut out of capital markets.
''The much reduced financing flexibility of the Spanish government is constraining its ability to intervene decisively in the restructuring of the banking sector and has increased the likelihood of external financial support,'' Fitch said in a statement. ''Spain's high level of foreign indebtedness has rendered it especially vulnerable to contagion from the ongoing crisis in Greece.''
The government though managed to auction 10-year debt today amid speculation over European officials acting to boost growth in the euro zone to ease the pressure on peripheral nations.