Spain Gets Upgraded by S&P

Spain seems to be doing quite good that Standard & Poor decided to upgrade its rating from negative to stable.

This is a major step that has removed the risk of Spain being downgraded to a junk state. This has also averted a major economic crises in the euro zone because Spain being the fourth-largest economy could stumble the already delicate euro economy.

Spanish markets were buoyed by the upgrade, with the IBEX 35 pushing 0.52% higher by early afternoon while bond yields eased. Yields fall as prices rise.

S&P was in recent years the most aggressive ratings firms in its assessment of Spain and once warned that the country was on a path toward insolvency. Just a year ago, many observers fretted that an S&P downgrade of Spain to junk—which could have been implemented at any point while the country was on negative outlook—had the potential to trigger a large-scale crisis in the euro zone.

S&P was more positive Friday than in recent reviews of Spain’s credit solvency, saying budget cuts and structural reforms are making the country less dependent on international markets.

Credit ratings are even more important for Spain than for other developed countries, as it has traditionally depended on foreign funding for domestic enterprises, and its government debt is quickly approaching the equivalent of the country’s annual growth domestic product—up from a third of GDP in 2007.

“We see improvement in Spain’s external position as economic growth gradually resumes,” S&P said, noting that supportive euro-zone policies are helpful for the economy. S&P on Friday kept Spain’s sovereign debt rating at triple-B minus.

The move by S&P comes shortly after Spain emerged from more than two years of recession. Fitch Ratings had already moved its outlook to stable from negative at the beginning of November. Spanish officials say all three top ratings firms—also including Moody’s Investors Service—have been the focus of lobbying in an attempt to improve their perceptions of its economy.

S&P said it expects Spain’s real gross domestic product to contract by about 1.2% in 2013 but then slowly recover. It said it expects Spain’s GDP to grow by 0.8% next year, and by 1.2% in 2015, broadly in line with the government’s own forecasts.

Source: Wall Street Journal