Spain’s Reforms Reap Standard & Poor’s Rating Reward


Spain’s Reforms Reap Standard & Poor’s Rating Reward

Spain received an early Christmas present last Friday: Standard & Poor’s raised its debt outlook to “stable” from “negative”, citing a gradual recovery in economic growth.

S&P is the second of the three main ratings agencies to lift its outlook for the country in under a month, after Fitch switched its rating to “stable” from “negative” in early November.

So what has prompted these global ratings firms – accused of playing God with the fate of nations and their financial markets – to look more favourably on Spain? Two factors are key: first, the government’s austerity measures to slash public debt are bearing fruit. Second, expectations for solid export-led growth are being confirmed.


Spain’s ratings have plummeted over the last two years as it struggled to recover from a 2008 property crash that saddled banks with a pile of bad loans, swelled public debt, and pushed the jobless rate to over 27 per cent earlier this year. The nation first lost its top credit rating at S&P in 2009 and has not been upgraded by any of the three main agencies since.

But thanks to wage moderation and economic reforms, Spain has regained some of its competitiveness. It finally exited a two-year recession in the third quarter, led by solid export growth.

Reforms to the labour market, pensions system and financial sector have also helped put the economy on a surer footing, which has been welcomed by the ratings companies. “Today’s rating action reflects our view that Spain’s external position is improving as economic growth gradually resumes,” S&P said on Friday.


S&P’s upgrade hot on the heels of Fitch’s marks a change in fortune for Spain. It is another vote of confidence in the country, validating recent investments by dealmakers like Bill Gates, while also attracting more M&A activity. The improved outlook also makes it easier for Spanish companies to seek external financing for expansion.

Moreover, it reduces the immediate risk that the country will lose its investment grade rating. This was affirmed by S&P at BBB-, the lowest investment score and just one notch above junk bond status. Moody’s rating agency also rates Spain at BBB-, while Fitch currently grades the country one notch higher at BBB.

To improve its ratings further, Spain will have to show it can achieve sustainable economic growth, driven by a revival in domestic demand. Last week, the National Statistics Institute said household spending, which accounts for two-thirds of the country’s economic output, has started to pick up. This could herald a more solid recovery.

For information on Spain’s credit ratings, contact corporate law firm Argali Abogados.

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