Spain’s credit rank was raised by Standard & Poor’s, while Fitch Ratings increased Greece’s grade, as the economic outlooks improve for countries that were at the heart of Europe’s sovereign debt crisis.
S&P lifted Spain’s long-term rating one level to BBB, the second-lowest investment grade. Fitch boosted Greece’s long-term rank one step to B, it said in a statement. The new level is five steps below investment grade. Moody’s Investors Service is also scheduled to review its ratings for France, the U.K. and Slovenia today.
Markets have already given their verdict on the turnaround in nations shunned during the crisis that threatened to break apart the euro bloc in the early 2010s. Spain’s borrowing costs have fallen to record lows amid a rally that has also brought investors back to Greece, Ireland and Portugal. Greece, which set off the turmoil in 2009 when it revealed its budget deficit had ballooned to over 15 percent of economic output, is poised to return to growth after six years of contraction.
“They’re past the worst,” said Yusuke Ito, a Tokyo-based senior fund manager at Mizuho Asset Management Co., which oversees $39.3 billion. “The solidarity of the euro zone has improved.”
Mizuho has been “heavily overweight” Spain and Italy bonds for a few years, he said, referring to holding a bigger percentage of the debt than is contained in the indexes used to measure performance. It doesn’t invest in Greece or Portugal because those countries aren’t in the benchmark it uses to gauge performance, he said.
“The economy is bottoming out,” Fitch said in its report on Greece.
The outlook for Spain is stable, S&P said in a statement today, after increasing the score for the first time since stripping the nation of its AAA grade in 2009. The move lifted the rating from BBB-, which is one step above junk status, and follows similar changes by Fitch last month and by Moody’s Investors Service in February.
“This is the first upgrade since the crisis did begin so in a way this is a turning point,” Moritz Kraemer, chief ratings officer at S&P in Frankfurt, said in an interview on Bloomberg Television’s “On The Move” with Mark Barton. “The rating is still at BBB. That’s way below where it was when the crisis started and that signals our view that there’s still significant risks to the trajectory going forward.”
Rating companies are revising their call on Spain’s ability to pay its debts after the nation this year left the European Union bailout program it was forced into in 2012. Spain’s borrowing costs have since fallen to record lows amid a rally that has also brought investors back to Ireland, Portugal and Greece, suggesting that Europe’s debt crisis is over.
“The upgrade reflects our view of improving economic growth and competitiveness as a result of Spain’s structural reform efforts since 2010,” S&P said in the statement. “Reflecting the effects of these reforms and our expectation that monetary policy in the eurozone will remain highly accommodative, we have revised our average 2014-2016 GDP growth projections for the Spanish economy to 1.6 percent from 1.2 percent.”
Spain’s Treasury yesterday auctioned five- and 10-year debt to yield less than in 2004 and 2005, when the country’s economic growth exceeded 3 percent a year and its public debt burden was less than half its current level of 94 percent.
S&P affirmed its long-term rating of AA+ for the Netherlands and said the outlook is stable.
The country lost its highest ranking with S&P in November, as the credit assessor cited weaker growth prospects. The nation still holds a top grade at Fitch and Moody’s Investors Service.
The Dutch economy is expected to grow 0.75 percent this year and 1.25 percent next year, driven by exports and investments, the government’s planning agency CPB said in March. It sees the country’s budget deficit at 2.9 percent of gross domestic product, narrowing to 2.1 percent in 2015.
To contact the reporters on this story: Wes Goodman in Singapore at firstname.lastname@example.org; Angeline Benoit in Madrid at email@example.com; Nikos Chrysoloras in Athens at firstname.lastname@example.org