S&p Maintains Its Rating For Spain But Warns Of A Negative Impact If The Labor Reform Is Reversed

S&P has updated its rating of Spain (A / A-1) although it affirms that its outlook continues to be negative regarding fiscal and structural challenges, also warning that the risks to Spain’s fiscal and growth path persist.

Regarding the recovery of the Spanish economy, S&P expects that they will 2019 levels in 2022, as authorities phase out social distancing measures and commercial and global travel recovers.

Regarding European funds, it is pointed out that Spain is eligible for 12.8% of GDP in loans and transfers from the Recovery and Resilience Fund of the European Union, 2.7% of GDP than the Executive will spend under the 2021 budget plan.

They also project the consolidation of the Spain’s budget deficit at 4.2% of GDP in 2022 from an estimated 11.8% last year, as the recovery in demand benefits revenues and the extraordinary economic support is gradually phased out.

The confirmation follows in the wake of the Canadian agencies DBRS Morningstar and Moody’s, which on March 5 also ratified their notes ‘A / R-1’ and ‘Baa1’, respectively, to the Spanish sovereign debt, in both cases with perspective stable.

In the case of S&P Global Ratings, the bias negative, prevents a potential future downgrade if the risks that you now observe crystallize. In the report released this Friday, he justifies the bias in the vulnerabilities that the crisis has created in homes and companies, and warns that “some SMEs could face bad debts, increasing contingent liabilities“when the Government begins to withdraw the extraordinary support measures.

On the other hand, it warns of the potential increase in the deficit of the social security system as the population ages if there is no political commitment to increase the effective retirement age or extend the duration of compulsory contributions. “We think that the persistent deficits of social security in Spain reduce the probability that the general budget of the State will have primary surpluses in the projection horizon”, explains their report.

Its experts say it could lower the ratings in the next two years if they see that the country’s growth potential has been weakened, for example, by a reversal of labor or product market reforms. They also warn that the ratings “could be subjected to stress” if there is a use of public guarantees used to give credits “on a large scale” and force to carry out debt increases beyond your forecasts.

Conversely, S&P Global Ratings affirms that it could improve its rating for the Spanish Treasury “if the Spanish economy recovers strongly over the next few years, budgetary consolidation accelerates and transfers from the EU lead to improvements in the country’s growth potential “.

Political risks

In a more political key, the firm details that the Government led by the PSOE is the first coalition government in the modern history of Spain, and “has faced a series of political challenges” as it lacks a parliamentary majority for the ” need to look for the legislative support from a wide range of smaller political parties, including regional “.

Although it notices that the pro-independence platform of the Generalitat of Catalonia “continues to be a point of friction in national politics,” it acknowledges that, “until now, political tensions have not weighed significantly on economic performance of Spain “.

In this regard, it recognizes that the formulation of policies has been “generally effective in recent years”, promoting sustainable economic growth. But he also advises his report that policy changes “are possible” due to changes in administration, “which is currently weak given the political landscape” or because of “possible destabilizing influences from underlying or significant socioeconomic challenges. long-term”.