Bankinter | Fitch Ratings has confirmed its A- credit rating with a stable outlook for Spain’s long-term sovereign debt.
The rating agency justifies its decision on financial and external resilience, strong GDP growth in recent years and structural reforms. It also considers that the recent deficit reduction gives some confidence that, once the COVID-19 crisis is overcome, public debt will maintain a downward trend. It estimates GDP will see a decline of 9.6% this year and will grow 4.4% in 2021.
This drop in GDP will mean that unemployment will rise this year to 21.5%. The deficit will stand at 11.1% in 2020 and 8.1% in 2021. Finally Fitch estimates that public debt will stand at 115.9% this year, rising to 117.9% in 2021.
Despite the difficult situation due to COVID-19 and the severe impact on the economy, it is good news that Fitch has decided not to modify its outlook. The situation facing Spain is complicated, amongst other things, by the pandemic’s substantial effect on tourism. This sector’s contribution to GDP is greater in Spain than in the rest of European countries (12.7% of GDP vs 3.9%).
In our opinion, it is crucial there is no structural loss of employment. On the other hand, the measures introduced to cushion the impact, like support for SMEs through fiscal flexibility and 200 billion euros of guarantees, should help to put the situation back on track. However, they are less effective than cash injections and direct aid.
Meanwhile, Fitch is maintaining its AAA rating with a stable outlook for Germany. This reflects the diversification and high added value of its economy, strong institutions, healthy public accounts and trade surplus. It forecasts GDP will contract this year by 6.7% and grow by 4.8% in 2021, while government debt will rise to 74% this year from 60% in 2019. Finally it estimates that the deficit over GDP will stand at 8.6% in 2020.
Germany is facing the COVID-19 crisis in a more advantageous position than other European countries. In addition to the strength of its economy, the government recently announced a 130 billion euros stimulus package. A package aimed at boosting consumption and business investment.