ECONOMY

In Brief

Moody’s cuts Portugal rating; Spain under watch Portugal had its credit rating cut two notches to A1 by Moody’s Investors Service as prospects for weak economic growth after allowing its budget deficit to balloon will lead to a growing debt burden. «The Portuguese government’s financial strength will continue to weaken over the medium term,» Moody’s said in a statement yesterday, adding that the outlook is stable. «The Portuguese economy’s growth prospects are likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term.» Portuguese bonds extended declines after the rating cuts, with the yield on the benchmark 10-year bond rising seven basis points to 5.50 percent. That widened the yield premium investors demand to buy the Portuguese bond over comparable German debt by 4 basis points to 284 basis points. The euro slipped to $1.253 at 9.20 a.m. in London from $1.260 yesterday. The Portuguese government has raised taxes and cut spending in an attempt to rein in the euro region’s fourth-largest budget deficit, threatening to crimp growth in an economy that has barely expanded in a decade. High-deficit nations such as Portugal and Spain are adopting austerity measures after Greece’s near default led their borrowing costs to surge and prompted the European Union to adopt a 750-billion-euro ($941 billion) financial backstop. «With the announcement on Portugal I would say be on the lookout for a downgrade on Spain,» said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London. «My bias would be toward two notches.» (Bloomberg) Bulgarian unemployment falls for fourth month SOFIA (Reuters) – Bulgaria’s jobless rate eased for a fourth consecutive month in June to 9.3 percent, down from 9.5 percent a month earlier, the labor minister said yesterday. Unemployment in the poorest European Union country has dropped by 1 percent since February, when it peaked at 10.3 percent after climbing steadily since the end of 2008. Labor Minister Totyu Mladenov said this 1 percent equaled 37,000 people, bringing the total number of unemployed in June to around 343,000 people. The drop was mainly due to a seasonal pickup in tourism and agriculture. The prolonged recession has hit the Balkan country hard and increased the unemployment line by 100,000 since January of 2009. Slovakian approval European Commission President Jose Manuel Barroso said yesterday that he expects Slovakia will sign off on the euro-area rescue fund. At a joint news conference with Barroso in Brussels, Slovak Prime Minister Iveta Radicova said her cabinet will discuss today the European Financial Stability Facility, which would sell debt backed by 440 billion euros in national guarantees and use the proceeds to lend to euro-area nations in need. She said her cabinet would also discuss a separate aid package for Greece. (Bloomberg) Enough TT capital State-controlled Hellenic Postbank (TT), one of six Greek lenders to be stress-tested as part of Europe-wide checks, expects the simulation will show it has enough capital, its vice chairman said on Monday. «TT has a capital-adequacy ratio that is the highest in Greece, with Tier 1 at about 17 percent in the first quarter. There is absolutely no expectation of any need for additional capital,» Spyros Pantelias, executive vice chairman at TT, told Reuters in an interview. «I am optimistic stress tests will show that other Greek banks are also in good shape, adequately capitalized,» he said, declining to go into the specifics of test assumptions and parameters. EU regulators are testing the strength of 91 banks to assess if they can withstand potential losses on their sovereign bond holdings and other shocks. The objective is to reassure investors on the health of European banks as the debt crisis batters Greek, Portuguese and Spanish government paper. The Committee of European Banking Supervisors will be publishing the results on July 23. Bonds make up about 34 percent of TT’s total assets with European Central Bank funding at about 3.0 billion euros. (Reuters)