Spain may seek a sovereign bailout within days, financial analysts predicted yesterday, after the eurozone’s fourth-largest economy revealed a soaring debt outlook.

Strong increase in the debt could provoke a cut in the Spanish sovereign grade

As signs gathered that Spain was entering the endgame, the EU economics chief, Olli Rehn, opened talks in Madrid with Economy Minister Luis de Guindos.

In the past week, Spain has unveiled an austerity budget for 2013 and revealed a lower-than-expected price tag for saving its banking system, both items considered essential homework for a bailout.

Meanwhile, the financial and economic crisis is deepening. Spain’s government revealed on Saturday that the cost of a banking bailout will send its debt soaring to 85.3 per cent of gross domestic product in 2012 and 90.5 per cent next year.

The Bank of Spain said last week the recession deepened in the third quarter. And Madrid’s forecast for an economic contraction of just 0.5 per cent next year has been met with deep scepticism on the market.

Moody’s Investors Service is set to announce within days whether it will downgrade Spain’s debt to junk bond status.

The accumulating crises are raising expectations of a Spanish bailout, which will be in the minds of eurozone finance ministers at a meeting on October 8 and again for a European Union summit on October 18 to 19.

The rising Spanish public debt, in particular, is a worry, said a report by brokerage Link Securities.

“This strong increase in the debt could provoke a cut in the Spanish sovereign rating to non-investment grade by Moody’s, which is feared by investors to happen this week,” Link Securities said.

If Moody’s cuts Spain’s debt to junk bond status it would be “almost impossible” for the country to delay any further a request for a sovereign bailout, Link Securities said.

The Spanish 2013 budget, presented to Parliament on Saturday with €39 billion in austerity measures, was based on an optimistic growth outlook but contained spending cuts that were “tough and real”, said Holger Schmieding, analyst at Germany’s Berenberg Bank.