The credit rating agency Fitch has decided to maintain its long-term issuer rating for Spain’s sovereign debt at ‘A-‘, while it has raised its outlook for the rating to positive from stable, as announced by the entity.
For the risk rating agency, positive outlook reflects “improving structural factors” that have increased the growth potential of Spain’s GDP and have reinforced its resilience to external shocks.
In this sense, it considers that the positive trends in the labor market driven by strong net migration and reforms, the improvement of competitiveness and the absence of macrofinancial imbalancessupport the assessment that Spain will continue to outperform its eurozone peers over the forecast horizon.
Thus, Fitch projects real GDP growth in Spain of 2.9% in 2024 and an average growth of 2.2% in 2025-2026, compared to the eurozone average of 1.5%.
Likewise, the agency has revised upwards its view of Spain’s growth potential to close to 2% for the period 2024-2028based on further growth in labor supply and highlighting that foreign labor will continue to be an important driver of labor supply growth, thus helping to offset a natural decline in Spain’s population.
“Current trends support that Spain’s working-age population doubles of the projected rate of the major European peers,” explains the risk rating agency.
On the other hand, the agency points out that the absence of macrofinancial imbalances reflected in a strong banking sector and low private sector debtwhile pointing out that the public debt ratio, which stood at 105.1% of GDP in 2023, has decreased 14 percentage points from its pandemic peak of 119.3% in 2020, with the goal of placing it below the 100% of GDP in 2027, according to the framework of the Medium-Term Fiscal and Structural Plan (PMMP 2025-2028).
On this issue, Fitch foresees a more gradual decrease in debtup to 101.2% of GDP in 2027, based on the lack of visibility of fiscal consolidation measures, and recalls that, compared to its peers, Spain’s debt ratio is more than double the median “A ” (49.6%) and the fourth highest in the eurozone, after France (109.9%), Italy (134.8%) and Greece (163.9%).
Furthermore, Fitch points out that the Spain’s political stability component is slightly lower that of its ‘A’ rated peers, reflecting the country’s highly decentralized government setup, which can sometimes lead to greater political fragmentation.
In this way, he warns that the minority coalition government of Pedro Sánchez “continues to face challenges in moving legislation forward” and dependence on support from separatist parties “increases policy implementation risks”, as demonstrated by delays in discussions on the 2024 and now 2025 budgets.
In this sense, it warns that progress in the structural reform necessary for the disbursement of EU funds could also be hamperedalthough it recognizes that the vast majority of the important reforms have already been approved, including the second part of the pension reform and the new Employment Law, despite the fact that no progress has been made in the milestone of the tax reform of the Plan of Recovery.
In this way, Fitch points out as factors that could, individually or collectively, lead to a negative action on the Spanish rating a new increase in public debt/GDP as a consequence of larger than expected fiscal deficits or weaker growth, as well as by structural issuesincluding an increase in internal political tensions, such as between the regional government of Catalonia and the central government, leading to a serious deterioration in the implementation of economic and fiscal policy.
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