“The incoming government will need to implement significant tightening measures in order to achieve its fiscal target next year,” Moody’s said in a statement.

Spain has promised to trim the deficit, a big worry for financial markets, from 9.3 percent of gross domestic product last year to 6.0 percent this year and 4.4 percent in 2012.

The conservative Popular Party which won Spain’s November 20 general election has said it will slash spending to meet these targets.

Moody’s said the absolute parliamentary majority won by the PP in the election was “positive” and urged it to take “early and decisive policy action” on the deficit.

Two other major credit ratings agencies, Fitch and Standard & Poor’s, last week also stressed the need for action to cut the deficit.

All three agencies had downgraded Spain’s sovereign debt last month, warning it was at risk from the eurozone debt crisis.

PP leader Rajoy is likely to be sworn in as prime minister about December 20. He faces a 21.5-percent jobless rate and the threat of a recession at the start of 2012 after zero economic growth in the third quarter.