As was reported to be a possibility last week, Standard & Poor have officially downgraded their rating for Spain's long-term debt from AAA- to AA+. Spanish Economy Minister Pedro Solbes claimed in an interview published yesterday that whilst the downgrade was not "an insignificant issue" ("un tema despreciable"), it did not go "further" ("más lejos"). He downplayed the change by stating that Spain had only acquired triple-A status during late 2004. S&P confirmed that Spain's short-term rating remains at A-1+.
In other news, the European Commission (EC) is forecasting that the Spanish economy will contract by 2 per cent during 2009, compared with the Spanish government's forecast of a 1.6 per cent reduction, and the EC believes that the Spanish unemployment rate will reach 16.1 per cent (against a forecast by Sr Solbes of 15.9 per cent) during 2009 and rise further to 18.7 per cent in 2010, roughly double the EU average. The EC revises downward its inflation forecast for the Eurozone to 1 per cent (1.2 per cent for the EU as a whole) and it forecasts Spain's public deficit will reach 6.2 per cent of GDP during 2009, because of increased unemployment benefit payments and the financial stimulus package adopted last November, as against the more optimistic forecast of 5.8 per cent by the Spanish government itself.
Whichever figures you choose to place credence in, the likelihood is that things will get considerably worse in Spain before they begin to get better; whilst the EC hopes to see small growth (of 0.5 per cent) throughout the EU in 2010, recovery in Spain is expected to take somewhat longer.