Both the International Monetary Fund and Spain's own Central Bank have cast doubt on the savings envisioned in Prime Minister Mariano Rajoy's 2013 budget, saying they are based on a too-rosy outlook for the economy.

Rajoy's center-right People's Party has an absolute majority in parliament and so far has been able to pass spending cuts and economic reforms without any problem.

However, street protests have increased in recent months as Spaniards revolt against huge public bailouts for the country's crippled banks, while social benefits are cut.

S&P's two-notch downgrade from BBB-plus brings it in line with Moody's Investors Service's rating. Both firms have Spain just on the cusp of junk status, and Moody's has Spain also on review for a possible downgrade.

Moody’s has promised to announce the results of a review of Spain’s finances for a possible downgrade this month.