Fitch Raises Spain’s Rating

Fitch Raises Spain’s Rating

Fitch Raises Spain’s Rating

After three years in the firing line due to concerns over its credit worthiness, Spain is back in favour with the rating agencies. These companies are revising their call on Spain’s ability to pay its debts after the country this year exited the European Union bailout programme it was forced to accept in 2012.

In April, Fitch upgraded Spain’s sovereign credit rating to BBB+ from BBB, three steps above junk status, reflecting growing confidence in the country’s fiscal and economic recovery. The Eurozone’s fourth largest economy finally exited a two-year recession in the third quarter of 2013. Fitch’s upbeat review came after peer Moody’s raised its Spain rating one notch to Baa2 in February. And just last month, Standard and Poor’s upped its credit rating one notch to BBB from BBB-. The implementation of structural reforms to cut the country’s hefty deficit and boost competitiveness, as well as improved market access, is behind the positive reading.

REFORMS IMPROVE ECONOMIC OUTLOOK

Recent positive economic data reflects the government’s reform drive focused on the financial sector and the labour market. Spain has struggled to recover from a 2008 property crash that pushed the jobless rate to over 27 per cent, swelled public debt and saddled banks with a pile of bad loans. The risk to Spain’s sovereign debt from this situation – raising the possibility of a default – sparked a shower of downgrades from the rating agencies.

But an overhaul of the banking industry forced lenders to take provisions against their troubled property assets and boost capital. An around 41 billion euro EU loan finally helped put the sector back on track. Spain’s economy expanded for a third straight quarter in the three months through March, growing twice as fast as the euro region average, according to initial Bank of Spain data. While high unemployment remains a risk for Spain – as highlighted by Fitch in its latest country review – labour market changes have increased companies’ productivity and enhanced their export potential.

ECONOMIC RECOVERY LURES FOREIGN INVESTORS

The slew of Eurozone credit downgrades during the financial crisis fuelled policy makers and economists’ anger at the ratings agencies for pushing investors away from the region. But the times they are a changing…

Last year, US billionaire Bill Gates bought 6 per cent of infrastructure giant FCC, while earlier this year China’s richest man Wang Jianlin acquired Madrid skyscraper Edificio Espana. Investment funds like Blackstone and Cerberus have picked up distressed property assets offloaded by the banks, while overseas leisure groups are eyeing tourism industry opportunities. After receiving the thumbs up from rating agencies like Fitch, Spain will attract more investors to its shores in the coming months.

For information on investing in Spain, contact corporate law firm Argali Abogados.

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