Fitch Ratings Downgrades Portugal’s Debt

First, there was the Greek debt crisis. Then Italy sued big banks for its own derivatives crisis. Now Portugal is up to bat. The Fitch ratings agency has downgraded its debt from AA to AA-. The Boston Globe has more:

Fitch Ratings said that Portugal’s prospects for recovery were weaker than its peers in the eurozone, adding that this will put make it harder to shrink its budget deficit over the medium term.

“A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness,” said Douglas Renwick, Associate Director in Fitch’s Sovereign team.

Fitch said the Portuguese government has to implement “sizeable” spending cuts and tax increases to meet its target of getting its deficit to 3 percent of economic output by 2013.

Despite the downgrade, Portugal’s debt is still considered investment grade and still a few notches above its rating of crisis-stricken Greece.

The BBC mentions the impact the Fitch downgrade could have on the Eurozone:

The downgrade could mean Portugal has to pay higher yields on government bonds to attract investors, making it more expensive for the country to borrow money – even though other leading ratings agencies may not necessarily follow Fitch’s lead.

Analysts stressed the wider European impact the downgrade could have.

“The downgrade has more impact on the wider sovereign debt crisis, rather than on Portugal at the moment,” said Peter Chatwell at Credit Agricole.