By Mario Sant Singh
Late last week, Spain became the latest victim to fall under the ratings knife again, with Standard & Poor's (S&P) lowering Spain's long-term sovereign credit rating from A to BBB+.
At the same time, it lowered the short-term sovereign credit rating to A-2 from A-1. The outlook on the long-term rating was negative.
According to S&P, the downgrade reflected its view of mounting risks to Spain's net general government debt as a share of gross domestic product (GDP) in the light of the contracting economy.
S&P also lowered the forecast for Spain's GDP, predicting that it would contract by 1.5 per cent this year and 0.5 per cent next year.
Additionally, it stated that there was an increasing likelihood that the government would need to provide further fiscal support to the banking sector.
Morgan Stanley estimates that Spain's banks need about 50 billion euros (S$83 billion) for the country to push through its budget cuts.
Over the weekend, Spain's largest unions led marches involving thousands of protesters in 55 cities. The protests came after a worldwide report showed that Spain's unemployment rate rose to 24.4 per cent in the first quarter, its highest level in 18 years.
In the United States, GDP figures were released last Friday.
The 2.2 per cent growth disappointed traders and investors, who had expected a reading between 2.5 and 2.7 per cent. The US dollar dropped against the majors after the news was released.
This came after a "hotly watched" Federal Open Market Committee meeting where Federal Reserve chief Ben Bernanke hinted at a third round of quantitative easing, saying that the Fed was prepared to do more if the economy weakened.
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