In light of the ongoing sovereign debt crisis in Europe, Fitch Ratings has downgraded both Italy and Spain, the raging agency said Friday.
In cutting its ratings on Italy, Fitch said that the downgrade “reflects the intensification of the Euro zone crisis that constitutes a significant financial and economic shock which has weakened Italy’s sovereign risk profile.”
Fitch says that a solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors, and, in the meantime, it says that the crisis is adversely impacting financial stability and growth prospects across the region.
Moreover, the high level of public debt and fiscal financing requirement, along with the low rate of potential growth, renders Italy especially vulnerable to such an external shock, it says.
Similarly, the downgrade for Spain also reflects the situation in Europe, and “risks to the fiscal consolidation effort arising from the budgetary performance of some regions and downward revision… of Spain’s medium-term growth prospects.”
As with Italy, Fitch says that Spain’s sizeable structural budget deficit, high level of net external debt and the fragility of the economic recovery as the process of deleveraging and rebalancing continues “render Spain especially vulnerable to such an external shock.”
Additionally, the rating agency maintained Portugal on “rating watch negative”.