Bankinter| Fitch confirmed Spain’s rating last Friday, based on the diversification of the economy and institutions, backed by eurozone membership. The Stable outlook is based on the expectation that the new government will continue to implement policies in line with the Recovery and Resilience Plan. Despite this, it also cautions that “increasing political polarisation” and reliance on separatist support “could pose challenges”. The outlook for GDP growth of +2.3% in 2023 estimated and +1.7% in 2024 estimated is based on “the net positive impact of NGEU funds”. Moody’s issued a commentary, not a credit review report, last Friday. In it, Moody’s warned that the political agreements have a negative impact on sovereign credit, given the increase in political risk.
Assessment: Moody’s has a credit rating on Spain of Baa1 (Stable), which it revised in January and July 2023, one notch below Fitch’s equivalent (A- Stable outlook), which it revised in May and November. The growth outlook is very much in line with the EC’s recent revision (15 November, pointing to +2.4% 2023 estimated and +1.7% 2024, revised two tenths down). Our projections from the latest quarterly strategy (published in Sept-23) point to +2.2% 2023 and +1.6% 2024.
Moody’s confirms Italy’s rating at Baa3 and upgrades the outlook to stable from negative. The rating agency maintains the rating at Investment Grade due to a robust manufacturing sector, high household wealth and low private indebtedness. On the other hand, the decision to upgrade the outlook is based on the health of the financial sector, the stabilisation of the country’s economic outlook and the dynamics of public debt.
This positive news comes as a surprise as the market was contemplating the possibility of a rating downgrade that would have led to a loss of investment grade status. This improved outlook, together with the recent rating confirmations in the last few weeks by the ratings in recent weeks by other rating agencies such as Fitch and S&P is a boost for Meloni’s government. It should be recalled that Italy recently approved aid and tax cuts of €24bn, leading to an expected public deficit of 5.3% in 2023 (versus 4.5% previously estimated) and 4.3% in 2024. It would not be below the 3% threshold set by the EU until 2026.
Finally, Moody’s upgrades Portugal’s rating to A3 (Stable) from Baa2+ (Positive).
Assessment: The ratings agency raises Portugal’s rating by two notches, as a result of economic and budgetary reforms that will help the country’s sustained reduction in public and private indebtedness. Moody’s also notes that public and private investment under the PRR (Plano de Recuperação e Resiliência) justifies the positive medium-term outlook. Good news for the Portuguese economy, whose rating exceeds that of Spain for the first time.