Fitch slashes Portugal's credit rating to junk status

Credit rating agency Fitch has downgraded Portugal's credit rating from BB+ to BBB- due to its fiscal imbalances and high indebtedness, and the worsening outlook for Europe.

The agency has also downgraded Portugal's senior unsecured debt to BB+ and commercial paper to B. Fitch warned a continuing poor economic backdrop could lead to a further downgrade. Fitch expects Portuguese GDP to contract by 3% in 2012, although the agency expects significant structural reforms to improve the country's long-term competitive position. "Over the next two years, the recession makes the government's deficit reduction plan much more challenging and will negatively impact bank asset quality. However, Fitch judges the government's commitment to the programme to be strong...