Spain and Italy were both downgraded by DBRS Ratings Ltd. Wednesday amid weakening outlooks for growth and rising systemic risks.

DBRS downgraded Spain by two notches, noting that there has been a severe deterioration in Spain’s credit profile. The ratings are maintaining a negative trend, due to what DBRS sees as “considerable downside risks” to its economic growth outlook.

Five factors are behind the downgrade: Spain’s worsening economic outlook due to continued private sector deleveraging and fiscal austerity measures; deteriorating public debt dynamics due to the banking system’s recapitalization needs; growing difficulty in reducing fiscal imbalances due to the weak economic environment; increasing downside risks to the growth outlook and prospects for public debt stabilization; and, persistent doubts over the effectiveness of the policy response at the Euro area level appear to be contributing to investor uncertainty.

Further downward rating action could be triggered by a significant worsening of Spain’s ability to stabilize its public debt, DBRS says. “Substantial fiscal slippages with respect to program targets, a significant increase in public debt from materialization of contingent liabilities, or a deterioration of the growth outlook over the medium term in Spain or in the euro area could place further downward pressure on the ratings,” it says.

The rating agency also cut its rating on Italy by one notch, citing four factors for the downgrade: a deteriorating domestic growth outlook, which will impact the government’s ability to achieve its ambitious deficit reduction targets; medium-term policy uncertainty regarding fiscal consolidation and planned structural reforms; persistent stress in market funding conditions and rising systemic risks; and, persistent doubts over the timing and extent of the policy response at the euro area level.

At the same time, DBRS confirmed its existing sovereign ratings on Ireland, citing tentative signs of stabilization in the Irish economy, progress reducing fiscal imbalances, and the restoration of lost competitiveness as reflected by two consecutive years of current account surpluses. The negative trend on Ireland’s rating remains however due to increased downside risks to growth in the euro area.