Spain challenges S&P growth forecast

The Spanish government yesterday insisted that Standard & Poor's had underestimated Spain's growth prospects a day after the ratings agency downgraded the country's credit standing.

S&P forecast average Spanish annual growth of just 0.7 per cent from 2010 to 2016, which according to economy secretary José Manuel Campa is "clearly below estimates made not only by the government but by most national and international analysts as well".

The government predicts growth of 0.3 per cent this year followed by 1.8 per cent in 2011, 2.9 per cent in 2012 and 3.1 per cent in 2013.

A spokesman for the economy ministry said no public forecast has been issued beyond 2013. Spain has been grappling with recession since 2008 and its jobless rate now tops 20 per cent. With a public deficit equal to 11.2 per cent of gross domestic product, Spain is seen as vulnerable to financial market pressures, similar to those weighing on Greece.

S&P said it was lowering Spain's long-term sovereign credit rating by one notch to AA from AA+ because the country was "likely to have an extended period of subdued economic growth, which weakens its budgetary position".

The agency also said its outlook for Spain was negative and the country could face another downgrade, a decision which sent the euro plunging to a one-year low against the dollar and European stock markets tumbling.