Portugal had its credit rating downgraded by Fitch Ratings agency by one notch, bringing it to junk status. The rating is now at BB+ from BBB+ and the country’s negative outlook was maintained.
In a statement Fitch warned that further downgrades are possible as the government is facing increasing challenges to comply with its austerity plans.
“The country’s large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign’s credit profile is no longer consistent with an investment-grade rating,” Fitch said.
Portugal’s economy is expected to contract in 2012 by as much as 3 percent due to the ongoing euro zone debt crisis.
“The recession makes the government’s deficit-reduction plan much more challenging and will negatively impact bank asset quality,” Fitch said. “However, Fitch judges the government’s commitment to the program to be strong.”
“The sovereign crisis poses significant risks to the banking system, which lends to one of the most indebted private sectors in Europe and is highly reliant on wholesale financing (access to which is now closed off),” Fitch said.
Today’s downgrade follows from Moody’s downgrade in July, also to junk status. However, Standard and Poor’s maintained Portugal’s investment-grade rating in October.
Meanwhile a general strike is being held in Portugal today. This is the first in a year and has grounded flights and closed down the capital’s subway service as Portuguese protest austerity measures implemented by the government in order to receive an international bailout.