Ratings agencies Give Their View On Catalonia Effect: S&P More Constructive, Moody’s Remains Very Cautious

Catalonia effect on Spain economySpain economy

S&P published a specific note on Spain on 31/10 where it states that the recent events in Catalonia should not have any immediate impact on its ratings nor its outlook (BBB+/Positive). In one of the paragraphs it literally says: “…the implemented of art. 155 and the regional elections call have reduced the probability that tensions will heighten in the short-term.” “…We don’t think there will be independence in Catalonia.”

Moody’s also published a note on Spain yesterday 1/11 in which it warned about the risks of the Unilateral Declaration of Independence and about the implementation of art. 155. In its opinion, “avoiding that those members of the Catalan government who were sacked stand in the regional elections on 21/12 probably would make the stalemate even worse.” Furthermore, “the heightening constitutional crisis is negative for both Spain and Catalonia’s debt. This uncertainty may cause a deterioriation in economic sentiment and consumption spending in the region and across the country.”

According  to analysts from Bankinter, S&P’s more constructive focus contrasts positively not just with the view offered by Moody’s, but also with what S&P had maintained up to now, which was more ambiguous.

As a matter of fact, S&P did not improve its rating on Spain on 29/9, which we think would have happened in normal circumstances; in other words, without any political background noise. This more current and constructive view from S&P, with much clearer comments, will probably help Spain’s risk premium to remain below the psychological barrier of 110 basis points (109,05 bp this morning) over the coming days.

That said, its positive effect will be moderate due to the much more cautious outlook from Moody’s published at the same time. However Moody’s recently cut its forecasts for Spain’s growth to 2.9% in 2017 and to 2.3% in 2018.

“These estimates frankly seem conservative, including taking into account the increase in the political risk”, says experts.

Taking into consideration the economic impact of the political challenges facing Spain, Bankinter will publish a specific note in the next few days (probably tomorrow) quantifying and explaining our downward revision to Spain’s GDP 2017/2018. Today they are advancing the main figures of this revision: GDP growth 2017e from 3.2% to 3.1% and GDP growth 2018e from 2.8% to 2.5%.

As this is a revision which ultimately has a political cause (although obviously with economic consequences), we have maintained, and will maintain, a low profile on this issue given that our estimates and opinions never have a political content.

The Spanish government cut its growth forecacasts mid-October: GDP growth 2018e from 2.6% to 2.3%…although it revised its GDP growth forecast for 2017e upwards from 3.0% to 3.1%.

We understand that this upwards revision is due to the fact that its previous estimate in July (+3.0%) was too conservative. So, while still taking into account the new internal political risks, the real figure will probably be higher than the government’s July forecast. Once it has revised its forecasts incorporating the new internal political risks, we will prepare our own estimates (but not before, thus avoiding any political interpretation which, in any event, would be a mistake).