Moody's warns of worse to come as it cuts Portugal rating
Wednesday 14 July 2010
Portugal was dealt a blow yesterday as Moody's cut its credit rating, warning the economy would weaken further in the next few years.
The agency announced it had downgraded Portugal two notches from AA2 to A1, a move that increases the cost of its borrowing, as well as an indication that a default could be more likely.
Peter Dixon, a senior analyst at Commerzbank, said: "Portugal is between a rock and a hard place; it has serious structural and fiscal issues that need tackling."
He added: "The problems have been there since Portugal joined the Economic and Monetary Union. It wasn't strictly contagion, but Greece highlighted the problem."
Portugal's budget deficit hit 9.3 per cent of gross domestic product last year with only Ireland, Greece and Spain worse in the eurozone. This prompted the prime minister, Jose Socrates, to introduce an austerity plan. He said recently that the move had begun to pay off over the past six months.
Yet the Moody's analyst Anthony Thomas said the deterioration of the country's debt-to-GDP and debt-to-revenues ratios meant "the Portuguese government's financial strength will continue to weaken over the medium term". It added that the country's economic growth prospects "are likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term".
Moody's announcement comes just weeks after revealing it was considering a downgrade of Spain's credit rating. Mr Dixon said: "Portugal is in a tougher position to Spain as it does not have the export resources to dig itself out of a hole."
While the euro wobbled, the move to cut Portugal's rating was not met with a disastrous reaction in the market as it brought the rating closer to Standard & Poor's, which cut Portugal's rating in April.
Yesterday, the Bank of Portugal also heavily cut its growth estimate for 2011 to 0.2 per cent down from 0.8 per cent. The central bank warned that the country could fall back into recession following a slowdown in the second half.
- 2 Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Kenya bus attack: Primary school head teacher plays dead to escape slaughter by Islamic extremists
Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
Anti-gay hate preacher accidentally tweets 4,000 followers cartoon clip of him 'confessing' to be a 'homosexual sodomite'
Woman opens professional cuddling shop – gets 10,000 customers in first week
Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
France 'blocks' Russian sailors from boarding a warship
Rochester aftermath: Sacking of Emily Thornberry will make work of Labour MPs '10 times harder'
Revealed: How the world gets rich – from privatising British public services
iJobs Money & Business
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...