SwordoftheVistula
03-24-2010, 05:25 PM
The US can expect to be in the same position if Obamacare and other such policies stay in place for any significant amount of time.
http://www.bloomberg.com/apps/news?pid=20601087&sid=azuaDHkQHKp8
Portugal’s credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe’s weakest economies will struggle to meet their debt commitments as finances deteriorate.
The rating was lowered one step to AA- with a “negative” outlook, Fitch said in a statement today, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. The euro extended its decline, dropping against all but one of the 16 most-traded currencies. Portuguese stocks and bonds fell.
“A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness,” Douglas Renwick, associate director at Fitch, wrote in the statement from London. “Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than 15 European Union peers, which will put pressure on its public finances over the medium term.”
The governments of Greece, Ireland, Italy and Spain are seeking to narrow budget deficits that have swollen as their economies have been battered by the recession. Portugal’s deficit is 9.3 percent of gross domestic product, more than triple the European Union’s 3 percent limit. Failure by the EU to agree on a mechanism to help countries shore up their finances has hurt the euro, putting it on course for its worst quarter against the dollar since 2008.
Bonds, Stocks
The currency weakened 1 percent to $1.3363 as of 3:01 p.m. in London, bringing its slide this quarter to 6.7 percent. Portuguese bonds fell, with the yield on the 10-year note rising 4 basis points to 4.32 percent. The nation’s PSI-20 Index of stocks dropped 1.1 percent.
Portugal’s GDP is “significantly below” what is typical for an AA country, Fitch said. “Evidence that Portugal is entering a sustained recovery and that budgetary targets are being met, along with further structural reforms to enhance the productivity and competitiveness of the economy, would ease downward pressure on the rating,” the company said.
Portugal is planning to cut its budget deficit to 8.3 percent of GDP this year. The government predicted economic growth in 2010 of 0.7 percent. It shrank 1 percent last year.
‘Anemic Growth’
“The issue for Portugal is that it faces a chronic lack of competitiveness that has delivered only anemic growth,” Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London, said today in an e-mailed note. “Portugal will be rated A- within the next few years and ultimately below this to a BBB handle.”
Fitch’s downgrade puts it one step below the Aa2 rating assigned to it by Moody’s Investors Service and a level higher than the A+ rating at Standard & Poor’s. S&P was the last major rating company to downgrade Portugal, on Jan. 21, 2009.
The premium that investors demand to hold Portuguese 10- year government bonds over benchmark German securities of similar maturity widened 1 basis point to 125 basis points today. It averaged 31 basis points in the past 10 years.
The cost of protecting against losses on Portugal’s sovereign debt rose to the highest in almost a month, according to CMA DataVision prices for credit-default swaps. Five-year contracts insuring $10 million of bonds increased $6,000 a year to $140,000. Swaps rise as perceptions of credit quality worsen.
‘Slow Death’
The Portuguese and Greek economies may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors drive up government borrowing costs, Moody’s said on Jan. 13. While the two countries can still avoid such a scenario, their window of opportunity “will not be open indefinitely,” Moody’s said.
The Portuguese parliament will debate the government’s austerity plan tomorrow. Backing for cutting the deficit by 2013 is “crucial,” the Ministry of Finance said today in a statement.
“The Portuguese government reaffirms its strong commitment to fiscal consolidation and to improving competitiveness conditions, as reflected and detailed in the recently presented 2010-2013 Stability and Growth Program,” Portuguese Finance Minister Fernando Teixeira dos Santos said today in a separate statement.
http://www.bloomberg.com/apps/news?pid=20601087&sid=azuaDHkQHKp8
Portugal’s credit grade was cut by Fitch Ratings for the first time, underscoring growing concern that Europe’s weakest economies will struggle to meet their debt commitments as finances deteriorate.
The rating was lowered one step to AA- with a “negative” outlook, Fitch said in a statement today, adding that further economic or fiscal underperformance this year or in 2011 may lead to another downgrade. The euro extended its decline, dropping against all but one of the 16 most-traded currencies. Portuguese stocks and bonds fell.
“A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal’s creditworthiness,” Douglas Renwick, associate director at Fitch, wrote in the statement from London. “Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than 15 European Union peers, which will put pressure on its public finances over the medium term.”
The governments of Greece, Ireland, Italy and Spain are seeking to narrow budget deficits that have swollen as their economies have been battered by the recession. Portugal’s deficit is 9.3 percent of gross domestic product, more than triple the European Union’s 3 percent limit. Failure by the EU to agree on a mechanism to help countries shore up their finances has hurt the euro, putting it on course for its worst quarter against the dollar since 2008.
Bonds, Stocks
The currency weakened 1 percent to $1.3363 as of 3:01 p.m. in London, bringing its slide this quarter to 6.7 percent. Portuguese bonds fell, with the yield on the 10-year note rising 4 basis points to 4.32 percent. The nation’s PSI-20 Index of stocks dropped 1.1 percent.
Portugal’s GDP is “significantly below” what is typical for an AA country, Fitch said. “Evidence that Portugal is entering a sustained recovery and that budgetary targets are being met, along with further structural reforms to enhance the productivity and competitiveness of the economy, would ease downward pressure on the rating,” the company said.
Portugal is planning to cut its budget deficit to 8.3 percent of GDP this year. The government predicted economic growth in 2010 of 0.7 percent. It shrank 1 percent last year.
‘Anemic Growth’
“The issue for Portugal is that it faces a chronic lack of competitiveness that has delivered only anemic growth,” Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London, said today in an e-mailed note. “Portugal will be rated A- within the next few years and ultimately below this to a BBB handle.”
Fitch’s downgrade puts it one step below the Aa2 rating assigned to it by Moody’s Investors Service and a level higher than the A+ rating at Standard & Poor’s. S&P was the last major rating company to downgrade Portugal, on Jan. 21, 2009.
The premium that investors demand to hold Portuguese 10- year government bonds over benchmark German securities of similar maturity widened 1 basis point to 125 basis points today. It averaged 31 basis points in the past 10 years.
The cost of protecting against losses on Portugal’s sovereign debt rose to the highest in almost a month, according to CMA DataVision prices for credit-default swaps. Five-year contracts insuring $10 million of bonds increased $6,000 a year to $140,000. Swaps rise as perceptions of credit quality worsen.
‘Slow Death’
The Portuguese and Greek economies may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors drive up government borrowing costs, Moody’s said on Jan. 13. While the two countries can still avoid such a scenario, their window of opportunity “will not be open indefinitely,” Moody’s said.
The Portuguese parliament will debate the government’s austerity plan tomorrow. Backing for cutting the deficit by 2013 is “crucial,” the Ministry of Finance said today in a statement.
“The Portuguese government reaffirms its strong commitment to fiscal consolidation and to improving competitiveness conditions, as reflected and detailed in the recently presented 2010-2013 Stability and Growth Program,” Portuguese Finance Minister Fernando Teixeira dos Santos said today in a separate statement.