S&P Underestimated Growth Prospects

May 06, 2010

The Spanish government insists that Standard & Poor’s (S&P) had underestimated Spain’s growth prospects a day after the ratings agency downgraded the country’s credit standing.

S&P forecast average Spanish annual growth of just 0.7% from 2010 to 2016, which according to economy secretary Jose Manuel Campa is “clearly below estimates made not only by the government but by most national and international analysts as well.”

The government predicts growth of 0.3% this year followed by 1.8% in 2011, 2.9% in 2012 and 3.1% in 2013.

A spokesman for the economy ministry said no public forecast had been issued beyond 2013.

Jose Manuel Campa says the S&P forecast is ‘clearly below estimates made not only by the government but by most national and international analysts as well.’

Spain has been grappling with recession since 2008 and its jobless rate now tops 20%.

With a public deficit equal to 11.2% of gross domestic product (GDP), Spain is seen as vulnerable to financial market pressures, similar to those weighing on Greece.

S&P said on Wednesday it was lowering Spain’s long-term sovereign credit rating by one notch to AA from AA+ because the country was “likely to have an extended period of subdued economic growth, which weakens its budgetary position.”

The agency also said its outlook for Spain was negative and the country could face another downgrade, a decision which sent the euro plunging to a one-year low against the dollar and European stock markets tumbling. The Spanish government appealed for calm from investors following the downgrade, a day after similar downgrades for Greece and Portugal sent shockwaves through the markets.

“The downgrade of Spanish government debt by S&P is another alarming sign that the effects of the Greek crisis are spreading,” said Ben May, European economist at London-based market research firm Capital Economics.

Phil McHugh, a dealer at forex trading company Currencies Direct, said the contagion from the Greek financial crisis would likely spread to other nations on the fringe of the eurozone that were also burdened by big deficits.

Spain’s Deputy Prime Minister Maria Teresa de la Vega told reporters in parliament shortly after S&P Spain’s credit rating that the government was taking the measures needed to bring the public deficit down from 11.2% of GDP to within a 3% limit set for the 16 nations that use the euro by 2013.

“We are adopting all the measures needed to meet our commitments,” she said