Moody's downgrades Spain two notches, outlook negative

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Moody's ratings agency downgraded Spain's government bond rating two notches, from AA2 to A1, outlook negative, the agency said.

Moody's ratings agency downgraded Spain's government bond rating two notches, from AA2 to A1, outlook negative, the agency said.

The downgrade is due to Spain's vulnerability to market stress and event risk, moderate growth perspectives and possible problems in achieving budget consolidation targets, Moody's said.

The agency thinks economic risks will remain due to the European debt crisis, even if the Spanish government manages to normalize its relations with the debt markets in the short-term.

"Nonetheless, Moody's points out that Spain's new A1 rating reflects its view that the risk of default by Spain remains remote," the agency said.

The negative outlook reflects the country's GDP growth perspectives.

"Moody's is maintaining a negative outlook on Spain's rating to reflect the downside risks from a potential further escalation of the euro area crisis," the agency said.

Moody's now expects Spain's real GDP growth in 2012 to be 1 percent at best, compared with earlier expectations of 1.8 percent, with risks mainly to the downside. Over the following years, the rating agency continues to expect a very moderate pace of growth of around 1.5 percent on average per annum.

The downgrade concludes the review for possible downgrade that Moody's had initiated for Spain's rating on 29 July.

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