Fitch Ratings placed Catalonia's BB long-term foreign and local currency issuer default ratings on Rating Watch Negative, reflecting a further decline in institutional cooperation between the Catalan and central Spanish governments.
Catalonia's B short-term foreign currency issuer default ratings were also placed on Rating Watch Negative.
Fitch said Catalonia is likely to declare independence from Spain, which could be followed by the central government's dismissal of Catalan officers or even full suspension of the region's autonomy.
"Such intervention could prompt further social unrest, with potential negative effects on the regional economy," Fitch said.
While political uncertainty has not substantially affected the Catalan economy, Fitch warned that a sustained period of turmoil and further escalation in tensions with the central government present downside risks.
Worsening political tensions over the short term could disrupt state liquidity funding to Catalonia, Fitch said. However, the rating agency expects the region to maintain its access to state liquidity support for debt servicing over the medium term.
Fitch expects to resolve the status of Catalonia's ratings within the next six months. A weakening in the region's liquidity support from the central government could trigger a downgrade of several notches.
On Oct. 2, Fitch warned that an escalation of tensions disrupting Spain's political stability and economic activity could prompt a negative ratings action on the country.