Madrid – Fitch Ratings has downgraded Spain's long-term sovereign debt rating by two notches, citing the intensification of the euro-zone crisis and doubts about the budgetary performance of regional governments.
The ratings agency downgraded Spain's credit-worthiness from AA+ to AA- on Friday and said the country's outlook remained negative.
Fitch justified the downgrade by saying Spain was "especially vulnerable" to the problems European leaders face in resolving the region's sovereign debt crisis.
That vulnerability, according to Fitch, is due to Spain's "still sizeable structural budget deficit, high level of net external debt and the fragility of the economic recovery as the process of deleveraging and rebalancing continues."
The ratings agency criticized in particular the "budgetary performance of some regional governments," saying it "poses a risk to fiscal consolidation."
Despite the downgrade, Fitch said it views Spanish sovereign solvency as "secure" and said the government's response to the country's deficit woes has been "credible and aggressive."
The three main ratings agencies, Fitch Ratings, Moody's and Standard & Poor's, all have stripped away Spain's AAA credit rating since the start of 2009.
Spain will slip back into recession over the next two quarters and the Spanish economy is likely to contract 0.4 percent in 2012, U.S. investment bank Goldman Sachs said this week in its latest forecast for Europe.
The country has been grappling with high budget deficits in recent years and has set a target of reducing the annual public deficit to 3 percent of gross domestic product by 2013, in line with European Union mandates, down from more than 11 percent of GDP in 2009.
To that end, it has cut the wages of civil servants and raised the retirement age.
Spain's King Juan Carlos also signed into law a constitutional amendment last month aimed at capping future budget deficits.
But Prime Minister Jose Luis Rodriguez Zapatero's administration must balance EU and market demands for reduced debt and deficits with the need to stimulate job creation in Spain, where an extremely high unemployment rate continues to rise.
The Labor and Immigration Ministry said Tuesday that unemployment rose for the second consecutive month in September, with the number of people out of work climbing by 95,817 to a total of 4.22 million, an increase of 2.32 percent over August.
An additional 208,981 people have joined the jobless ranks over the past 12 months, according to the ministry's figures.
Spain's overall jobless rate is more than 20 percent, according to the European Union statistics agency.
The effects of the global recession were aggravated in Spain by the collapse of a long construction and property boom that had made the country's economy the envy of most of Madrid's partners in the European Union.