(RTTNews) – In a sign of continued concerns about the Greek debt crisis, Standard and Poor’s said Tuesday that it is lowering its ratings on Greece’s debt to junk status, slashing its ratings to BB+ from BBB-.

S&P that the downgrade to junk results from its updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory.

“We believe that the government’s policy options are narrowing because of Greece’s weakening economic growth prospects, at a time when pressures for stronger fiscal adjustment measures are rising,” S&P said.

Greece has recently asked for the activation of a lifeline offered to the beleaguered nation by the Eurozone and the International Monetary Fund. The bailout plan offers up to 45 billion euros.

S&P said that further information regarding the terms and duration of support for Greece is expected from the EU members in the coming weeks.

Citing amplified fiscal risks, S&P also lowered its credit ratings on the Republic of Portugal, with the move seen as sign that the Greek debt crisis is spreading.

S&P said it lowered its long-term local and foreign currency sovereign issuer credit ratings on Portugal to A- from A+, while it cut the local and foreign currency short-term ratings to A-2 from A-1. The ratings agency also said that the outlook is negative.

“The two-notch downgrade reflects our view of the amplified fiscal risks Portugal faces,” said Standard & Poor’s credit analyst Kai Stukenbrock.

He added, “Under our revised base case economic growth scenario, we expect the Portuguese government could struggle to stabilize its relatively high debt ratio over the outlook horizon until 2013.”

Stukenbrock also said that S&P believes Portugal’s public finances remain structurally weak in spite of the government’s substantial public sector reforms of recent years.

S&P said it believes that Portugal is likely to face additional adverse growth dynamics as a result of past dependence on now more scarce external financing as well as weak external competitiveness.

In order to reach is current targets, the ratings agency expects the Portuguese government will need to implement fiscal consolidation over and above its current plans.

“Portugal’s fiscal indicators, as well as its growth outlook, in our view compare unfavorably with the ‘A’ median for sovereigns,” S&P added.

S&P also said that it is has downwardly revised its growth outlook for Portugal, saying it now expects economic activity to stagnate in 2010.

The agency expects economic growth to be constrained by weak international competitiveness, low productivity gains, stagnating investment growth, and falling domestic credit

Additionally, while S&P said the Portuguese government is considering accelerating some fiscal consolidation efforts, the agency expects fiscal consolidation to progress at a slower pace than the government foresees.

S&P said it subsequently expects Portugal’s government debt to continue to rise rapidly, reaching 95 percent of GDP by 2013 compared to 66 percent of GDP in 2008.

Stukenbrock added, “The negative outlook on Portugal reflects our assessment of the potential for a further downgrade if deficits and debt levels exceed our current expectations and if consolidation measures are not fully implemented.”

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