Bloomberg News

Spain Rating Risks on ‘Downside’ as Regions Lag, Fitch Says

September 14, 2011

(Updates with downgrade of regions in third paragraph.)

Sept. 14 (Bloomberg) -- Spain faces risks “on the downside” to its credit rating as growth slows and regional governments fall behind schedule on deficit-reduction targets, Fitch Ratings Director Douglas Renwick said.

“Risks for the credit rating are clearly on the downside,” London-based Renwick said in a telephone interview yesterday. “The regional deficit performance adds to pressure on the central government to make the needed cuts.”

Fitch rates Spain AA+ with a “negative” outlook, and Renwick said weaker growth, failure to meet deficit targets, or larger-than-forecast use of public funds to rescue banks could be “clear triggers for the rating.” The company cut the ratings of five Spanish regions today, including Catalonia and Andalusia, citing a surge in debt and weak growth prospects.

Spain’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s said was “credit negative.” The regional governments manage more than a third of public spending, including health and education, and are suffering from a slump in revenues linked to real-estate transactions.

The 17 semi-autonomous regions posted a budget deficit of 1.2 percent of gross domestic product in the first half, the Finance Ministry said on Sept. 8, citing data that isn’t directly comparable to the figures used in the final deficit calculations. The regions have a deficit target of 1.3 percent of GDP this year.

Deficit Goal

That targeted shortfall is part of the overall public- deficit goal of 6 percent of GDP for this year, down from 9.2 percent in 2010.

Renwick said a slowdown in Germany, Europe’s largest economy, would make it more difficult for Spain to meet its 1.3 percent 2011 growth forecast. The government cut the prediction last year to reflect the impact of austerity measures.

“For Spain, meeting the official GDP forecast is becoming more and more challenging, especially because the German economy is weakening,” Renwick said.

Prime Minister Jose Luis Rodriguez Zapatero said today the growth forecast “may be affected” by market tension, even as he expects quarterly growth rates in the third and fourth quarter to be “similar” to the 0.2 percent growth rate seen in the three months through June.

Finance Minister Elena Salgado said in an interview on Aug. 19 that reaching the target is “a bit more difficult than it was a quarter ago” and depends on foreign markets. The economic growth rate slowed by half in the second quarter, while France, which is Spain’s biggest trading partner, stagnated, and Germany almost stalled.

Moody’s Investors Service has an Aa2 rating on Spain and Standard & Poor’s rates it AA.

--Editors: Craig Stirling, Eddie Buckle

To contact the reporters on this story: Esteban Duarte in Madrid at; Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at Paul Armstrong at

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