Morningstar DBRS has upgraded Spain’s long-term foreign and local currency issuer rating by one notch from ‘A’ to ‘A (high)’, with a stable trend, as the rating agency announced on Friday.
The upgrade reflects Morningstar DBRS’ view that Spain’s credit quality strengthened by strong economic performancethe reduction of net external commitments and the constant improvement of public finances.
The agency highlighted that the strong performance of services exports has been the driving force behind Spain’s recent economic growth and, in the coming years, it expects favorable labor market conditionsa reduction in interest rates, the recovery of purchasing power and the deployment of EU investment funds to support domestic demand.
Likewise, the risk rating agency hopes that “these forces will mitigate the adverse effects of the increased external risks and the weaknesses of European peers.
On the other hand, he points out that the government’s medium-term budget plan foresees gradual fiscal consolidation and persistent debt reduction throughout the decade, but warns that social and political tensions could weaken the capacity of the executive to legislate on key policies, even if Morningstar. DBRS expects that The government maintains its commitment to fiscal consolidation and is implementing its recovery plan.
Thus, the stable trend attributed to Spain’s rating reflects the view that medium-term risks to the outlook They are balanced.
“Spain’s credit ratings remain supported due to its large and diversified economy, its competitive export sector and its membership of the Eurozone”, affirms the agency, for which income from EU transfers throughout this decade will help to support the country’s economic performance, even if, on the contrary, he considers the high public debt rate as “a credit weakness”.
In this sense, he emphasizes that the top debt reduces budgetary margin of government to respond to future shocks, cope with higher financing costs or cope with increased expenditure linked to the aging of the population.
For its part, the dynamic a historically volatile job in Spain and high unemployment, although improving, “remain structural challenges” which limit a more significant convergence of productivity with the euro zone average.
Likewise, even if the institutional and territorial challenges posed by the independence movement in Catalonia seem to have been reduced, particularly since the Catalan regional elections of May 2024, he warns that political tensions they could resurface.
