The rating agency Standard & Poor’s has cut the sovereign credit rating of Spain by two notches and placed the country on a negative outlook, saying it also expected the country’s economy to contract during 2012 and 2013.

S&P said on Thursday that Spain’s budget trajectory was likely to deteriorate against the backdrop of a deteriorating economy and that the country may need to supply further fiscal support for its banking sector. S&P lowered the country’s long and short-term rating to triple B plus/A2 from A/A-1, near the lower end of investment-grade quality.

The agency said a further downgrade was possible should Spain’s net general government debt rise above 80 per cent of gross domestic product between now and 2014. “We could also consider a downgrade if political support for the current reform agenda were to wane,” it said.