Europe markets rattled as Fitch lowers Portugal's credit rating

Stock markets tumble as debt worries prompt agency to cut rating to AA minus

Portugal sent shivers through European markets yesterday after fears about its ability to repay its debts prompted the ratings agency Fitch to downgrade its credit rating.

Fitch – one of the "big three" agencies, along with Standard & Poor's and Moody's – cut Portugal by one notch from AA to AA minus, with a negative outlook. Douglas Renwick, associate director of Fitch's sovereign debt team, said the decision was motivated by concerns about Portugal's economic prospects, which he said were weaker than those of the other EU member states. It put Portugal's already shaky public finances under pressure. Mr Renwick added: "The downgrade reflects significant budgetary under-performance in 2009. The general government deficit in that year was 9.3 per cent of GDP, versus 6.5 per cent of GDP forecast by Fitch last September. This has significantly increased the scale of the fiscal challenge to stabilise and reduce debt over the medium term."

Stock markets across Europe took a tumble immediately after Fitch's announcement, although they recovered ground later on. The euro also suffered, falling by 1.34 cents, or 1 per cent, against the dollar to $1.3362.

The single currency fell against the pound as well, losing half a penny to 89.325p. That was because the downgrade heightened concerns that the debt troubles that have plagued Greece are spreading to the eurozone's other weakened economies.

Portugal holds an unwelcome place among the so-called "Pigs" – an unflattering acronym used to group together heavily indebted European countries with weak economies. Also included are Ireland, Greece and Spain, although some argue that Italy should be added, which would make the acronym "Piigs".

Analysts said the downgrade had been coming, and that Fitch's rating was mid-way between those of its rivals. They do not believe that either S&P or Moody's will necessarily follow suit, and the spreads Portugal pays on its debt above Germany's Bunds actually eased.

Fitch warned that the Portuguese government would nonetheless need to implement "sizeable consolidation measures from next year, on top of the reversal of the fiscal stimulus this year, in order to meet the 3 per cent of GDP deficit target by 2013. If this is achieved, public debt/GDP will peak at around 90 per cent in 2013".

RBC Capital Markets said it rated Portugal as the second most risky industrialised OECD economy behind Greece. "In terms of the current stock and flow of debt, Portugal does not rank that badly – significantly better than Japan, the UK, the US and Greece," the bank said. "It scores less well, however, on its ability to service its debt. Portugal's economic strength is acceptable but it is particularly weak in terms of its market response score, indicating a perceived lack of credibility in its fiscal plans."

RBC said that, after Portugal, the UK was ranked the highest risk in its Heat Map. It said: "[Britain's] current debt position is seen as very worrying, with only Japan in a worse state. Debt servicing is also becoming a concern. Economic strength is acceptable but the market response is unfavourable."

Britain still enjoys an AAA rating, but many fear this will be downgraded as a result of the spiralling public- sector deficit. Fitch has raised concerns about Britain while Standard & Poor's has the prized AAA rating on a negative outlook.

PROMOTED VIDEO
Extras
indybest
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
Arts and Entertainment
tv
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
News
Ronahi Serhat, a PKK fighter, in the Qandil Mountains in Iraqi Kurdistan
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Poet’s corner: Philip Larkin at the venetian window of his home in 1958
booksOr caring, playful man who lived for others? A new book has the answer
Arts and Entertainment
Exhibition at the Centre Pompidou in Metz - 23 May 2012
art
News
Matthew McConaughey and his son Levi at the game between the Boston Red Sox and the Houston Astros at Fenway Park on August 17, 2014 in Boston, Massachusetts.
advertisingOscar-winner’s Lincoln deal is latest in a lucrative ad production line
Life and Style
Pick of the bunch: Sudi Pigott puts together roasted tomatoes with peppers, aubergines and Labneh cheese for a tomato-inspired vegetarian main dish
food + drink
Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Quant Analyst - C++, Boost, Data Mining

£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Service Desk Analyst- (Desktop Support, Help desk)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Junior Quant Analyst (Machine Learning, SQL, Brokerage)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

UNIX Application Support Analyst- Support, UNIX, London

£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape