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Spain Affirmed at BBB- by S&P on Structural Reform Commitment

Spain Affirmed at BBB- by S&P on Structural Reform Commitment
Sun loungers stand chained together in the early morning on the beach at Sitges. Photographer: David Ramos/Bloomberg

June 14 (Bloomberg) -- Spain’s credit rating was affirmed at BBB- by Standard & Poor’s, which said that the country’s commitment to the implementation of a comprehensive fiscal, structural reform agenda remains strong.

The outlook on the long-term rating remains negative, which still shows the potential for a downgrade if political support on the current reform agenda dwindles, the budget “significantly” worsens or policies in the euro area falter in stabilizing the country’s funding costs, S&P analysts Marko Mrsnik and Frank Gill said in a statement today.

The rating is supported by a diversified and prosperous economy and the government’s implementation of financial, fiscal and structural reforms, the analysts said. Still, Spain faces high external debt as well “relatively” low medium-term economic growth prospects and a highly segmented labor market, S&P said.

The European Commission forecasts Spain’s debt load next year will be above the euro-area average for the first time in the currency’s history. Rated one to two levels above junk by S&P, Fitch Ratings and Moody’s Investors Service amid a sixth year of slump, the euro region’s fourth-largest economy has so far avoided a full bailout.

The country’s real gross domestic product will contract by about 1.5 percent this year before slowly recovering, while next year’s real GDP growth will be about 0.6 percent due to factors such as weak consumption, the credit ratings company said.

Unemployment will remain “very high, at above 26 percent, at least until there is a sustained economic recovery,” even as the economy is being revamped with improved competitiveness and “robust” exports, S&P said.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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