New Jobless Record As Spain Suffers Downgrade

Spain's shattered economy has suffered a double blow after its credit rating was cut and its jobless total hit a new record high of 5.64 million.

It was confirmed this morning that almost a quarter of the country's workforce is now out of a job.

The jobless rate hit 24.4% amid a deepening recession in the first quarter of the year.

Hours earlier, Standard & Poor's downgraded Spain by two notches to BBB+, citing expectations that government finances will deteriorate even more than previously thought as a result of a contracting economy and an ailing banking sector.

"We think risks are rising to fiscal performance and flexibility, and to the sovereign debt burden, particularly in light of the increased contingent liabilities that could materialise on the government's balance sheet," S&P said in a statement.

The agency has also placed Spain on negative outlook, meaning it could face further downgrades in the future.

Moody's Investors Service rates Spain at A3 with a negative outlook, and Fitch Ratings at A, also with a negative outlook.

It was the first downgrade for Spain since Prime Minister Mariano Rajoy took office in December.

A spokeswoman for Spain's economy ministry said the S&P move did not properly reflect the impact that reforms announced by the government would have on reactivating an economy which has now entered in its second recession in three years.

The new centre-right government has announced a raft of reforms since being sworn in, including ones to make the rigid labour market more flexible, strengthen its banking sector or prevent overspending in its highly devolved regions.

Spain spooked debt markets last month by unilaterally announcing a more modest budget deficit target.

It has since agreed with the European Union to reach 5.3% of GDP this year and 3% by 2013, down from 8.5% of GDP in 2011.

But many economists view the task as being just impossible to achieve.