Moodys Raises Spain Rating One Notch on Improved Credit Profile

Spain’s sovereign rating was raised one notch to Baa1 by Moody’s Investors Service, with a stable outlook, completing a full rating upgrade by all the main credit services.

"Recent years have seen gradual, but increasingly sustainable, improvements to Spain’s credit profile. Much has been done to address the weaknesses in the banking sector that emerged during the financial crisis. It has also become increasingly clear that structural changes in the economy have changed the growth model to one that is broader-based and more sustainable than in past recoveries,” Moody’s said in a statement on Friday. Spain’s previous rating was Baa2.

The Spanish economy has entered its fifth year of expansion, showing a resilience to external shocks and political turbulence. The momentum has prompted the three major credit agencies to improve their rating in recent months, reflecting the change in fortunes for the kingdom. Fitch made the first move in January when it upgraded Spain to A-, while rival S&P Global Ratings followed suit a last month with another one notch increase.

“Given the improved economic and fiscal performance, Moody’s looked behind the curve so the decision is not surprising,” Angel Talavera, lead European economist at Oxford Economics in London, said before the report. “Even so, we see limited gains for Spanish debt given how spreads have tightened.”

Earlier this week, Banco Bilbao Vizcaya Argentaria added to the bullish tone on Spain when it upgraded its growth forecast for the nation to 2.9 percent for this year, citing strong fundamentals and the limited impact of the Catalan independence crisis on the overall economy. The improvement adds to increased sentiment reflected by the Bank of Spain, which also upgraded its growth forecast on renewed momentum in exports.

Spain has “undergone a remarkable turnaround” since the euro crisis, Goldman Sachs Group Inc. said in a note to clients earlier this month. That’s when Spain plunged into a double-dip recession as its real estate market collapsed and banks were battered by sour loans. Since then, the economy has grown for 18 consecutive quarters and reduced its budget deficit after running one the largest shortfalls in the European Union.

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