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.
- 1 All Blacks Aaron Cruden misses New Zealand flight after drinking session, has brilliant excuse
- 2 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 3 'F*ck it, I quit': TV reporter Charlo Greene quits live on air in spectacular fashion
- 4 Alicia Keys leaks nude photo 'to create a kinder and more peaceful world'
- 5 Clothes store Joy angers mental health campaigners with Twitter exchange on bipolar disorders
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...