China was once reported to be ready to purchase a substantial amount of sovereign debt from Portugal, but may now be rethinking that option, as its domestic credit rating agency, Dagong Global Credit Rating, cut Lisbon’s sovereign rating on Wednesday.
Reuters reported that Dagong dropped Portugal’s rating by a notch to BBB+, which is lower than that given the country by international ratings agencies such as Standard & Poor’s and Fitch Ratings. In a statement, the agency said that Portugal’s economy might shrink during 2011 and that the sovereign debt crisis in Europe could be headed for rougher times this year.
Questionable success in creating financial reform and economic growth that was slow at best were two major factors in the agency’s determination. "It will be more difficult than expected for Portugal to make structural reforms and to improve its current account deficits," the statement said in part. "The country will also see bigger pressure on liquidity and asset quality in its banking system.”