Posted on 03/24/2010 8:57:08 AM PDT by Cheap_Hessian
The rumors yesterday about a Portuguese downgrade ended up being true, courtesy of Fitch. Portugal to Bund spread widens 4 bps to 125bps, all European spreads wider also as a result. Euro dumped and breaks 1.35 support, last seen in mid 1.33 range.
Full Fitch text.
Fitch Ratings: Fitch Ratings has downgraded Portugal's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'AA-' from 'AA'. The agency has simultaneously affirmed Portugal's Short-term foreign currency rating at 'F1+' and Country Ceiling at 'AAA'. The Outlooks on the Long-term IDRs are Negative.
"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. "Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than EU15 peers, which will put pressure on its public finances over the medium term."
The downgrade reflects significant budgetary underperformance in 2009. The general government deficit in that year was 9.3% of GDP, versus 6.5% of GDP forecast by Fitch last September. This has significantly increased the scale of the fiscal challenge to stabilise and reduce debt over the medium term. The government will need to implement sizeable consolidation measures from next year, on top of the reversal of the fiscal stimulus this year, in order to meet the 3% of GDP deficit target by 2013. If this is achieved, public debt/GDP will peak at around 90% in 2013.
(Excerpt) Read more at zerohedge.com ...
“Gee, I didn’t see that coming...” (smile)
but what does it mean in practical terms?..what effects on the average citizen?.....
Well, it is actually helping extend the lie, known as the US economy, in the short term. Euro weakness hurts gold and helps the dollar. However, it is another warning shot that interest rates around the world are going up in the future. Effectively, the higher our interest rates the harder it is for our government to replace real economic activity with government spending. Ripping this government band-aid off would force us to double dip.
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