Fitch lowers Spain’s rating by two notches

Fitch on Friday cut Spain’s sovereign debt rating by two notches, citing the intensification of the euro-zone debt crisis, weak medium-term growth prospects and doubts about the regions’ contribution to fiscal consolidation.

Spain's long-term rating was cut from AA+ to AA-, the agency's fourth highest rating. The outlook on the ratings remains negative, indicating the possibility of further cuts.

"The downgrade primarily reflects two factors: the intensification of the euro area crisis and secondly, risks to the fiscal consolidation effort arising from the budgetary performance of some regions and downward revision by Fitch of Spain's medium-term growth prospects," Fitch said in a statement.

As a result, the ratings of Spanish banks are also expected to be cut. However, the agency said the sovereign downgrade would not affect the ratings of non-financial Spanish companies.

Fitch on Friday also lowered Italy's ratings but only a notch to A+, and reaffirmed the negative outlook on Portugal's BBB- rating.

The Spanish government has embarked on a draconian austerity drive to bring down its public deficit, which it is aiming to trim to 6 percent of GDP from 9.1 percent last year. It has also introduced a series of measures aimed at rectifying structural imbalances and has passed a constitutional amendment enshrining the government's obligation to maintain fiscal discipline.

Fitch said finding a solution to the euro-zone crisis would be both politically and technically complex, adding it will take time to restore investor confidence.

It said the regions’ contribution to restore the country’s finances was “vital.” Fitch also predicted Spain’s economic growth rate to remain below 2 percent through to 2015 and for unemployment to remain high.