The ratings firm downgraded Greece's long-term sovereign credit rating outlook to "negative" from "stable." Its rating remained at "CCC," well into "junk" status. Greece's economy is worsening, so it will likely need as much as 7 billion euros ($8.7 billion) in additional financing, or 3.7 percent of its gross domestic product, from the European Union and the International Monetary Fund, S&P said.
The move to lower the outlook reflects the possibility that S&P will downgrade Greece's rating if the nation fails to get additional funding from other eurozone countries and the IMF. The country has been relying on such loans since high interest rates pushed it out of bond markets in 2010. In return, it has imposed harsh austerity, slashing pensions and salaries, repeatedly hiking taxes and increasing the retirement age. The firm projects that Greece's gross domestic product will shrink by 10 or 11 percent over this year and next. The European Union and IMF have assumed GDP will slow only between 4 percent and 5 percent during that period.
Greece has received two bailouts totaling 240 billion euros from other eurozone governments and the International Monetary Fund after bond investors would no longer lend it money at affordable rates. In return for the money, Greece is supposed to cut its budget deficit and reform its economy. However, the economy has continued to contract and the new government of Prime Minister Antonis Samaras has said it wants more time to meet some of the conditions. Even so, S&P anticipates that Greece's government will find it difficult to make the additional cuts required to satisfy the conditions to get its next slate of funding from the EU and IMF. "We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy," S&P said. A cutoff of bailout money could lead to Greece defaulting on its remaining obligations and possibly leaving the euro currency.