Walter Finch
SPAIN’S impressive economic performance has seen its credit rating upgraded to the A band.
Currently the poster boy of Europe, Spanish debt has now been rewarded with an A3 rating by credit rating agency Moody’s – the fourth highest rating possible.
The Spanish economy had been labouring under a Baa1 rating for the past five years, although this is the highest rating in the B band.
The upgrade comes just six months after Spain was placed on a ‘positive watch’ thanks to its relatively breakneck growth of 2.5% in 2023.
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Spain’s strong economic performance – outstripping every large economy in Europe – and newfound political stability have bolstered its prospects.
Between April and June alone the economy grew 0.8%, above the OECD average of 0.5%.
The contrast between Spain and France, which grew just 0.3% in the same quarter, is particularly striking.
While France has faced political turmoil and concerns about its ability to manage its deficit, Spain has demonstrated remarkable stability and economic growth.
This has led to a significant narrowing of the yield gap between the two countries’ 10-year bonds, as lending to Spain becomes almost as safe as lending to the stronger economy of France.
Meanwhile, investors have been drawn to Spain’s bonds for the attractive yields they offer compared to Germany, the region’s safest asset.
Despite the recent decline in Spanish bond yields, they still provide a premium over German bonds.
According to American goliath Citi, Spain’s growth has not just been driven by a controversial boom in the country’s international tourism sector.
They also cite an increase in employment and productivity, as well as the rebound in exports of goods.
Despite the rosy news, Spain’s economic growth is expected to slow down in the short-term, according to the European Commission.
It forecasts a still-healthy 2.1% growth in 2024, but in 2025 it will ease down to 1.9%.
Rating agencies including Moody’s don’t have an unblemished record in their assessments of a country’s economy in order to rate its ability to repay debt. I wonder what Moody’s made of the news, also in this edition of The Olive Press, concerning the government now being the employer of more than half of the workforce.