More bad news for Spain, the country’s credit rate has been cut from AAA to AA+ by the Fitch ratings agency late on Friday.
Fitch explained that the downgrade was because the rate of growth of the Spanish economy over the medium-term will be reduced.
It highlighted the inflexibility of the labour market and the need for restructuring of Spain’s regional and local savings banks.
However it added: “Spain’s sovereign credit profile remains very strong and is underpinned by a high-income and diversified economy, a ‘core’ financial sector that is sound, a relatively high national savings rate and a track record of responsible public finances including an unblemished modern debt-servicing record.”
The downgrade came just hours after Spain set lower growth expectations for the coming two years leaving the country less leeway to meet deficit reduction targets already considered ambitious.
The Madrid government forecast the economy would grow by 2.5 percent in 2012, down from its previous forecast of 2.9 percent, and by 2.7 percent in 2013, down from 3.1 percent.
Last week it cut its forecast for 2011 to 1.3 percent from 1.8 percent.
But analysts said even these latest forecasts –
which are above those of the International Monetary Fund – are still too optimistic given how numerous and wide-ranging Spain’s economic problems are.
On Friday the government threatened to push labour market reforms through parliament unless a deal can be reached with unions in talks in the next few days.