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Moody's backs Spain's 'improving' economy

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Moody's backs Spain's 'improving' economy
Spain's public finances are said to be "on a gradually improving trend" but "still comparatively weak". Photo: Grumo/Flickr
09:22 CEST+02:00
Credit rating agency Moody's said on Tuesday that Spain is "now firmly on an improving trend" with exports boosting the eurozone's fourth-biggest economy as it crawls out of recession.

"While exports continue to be the main driver of growth, the rating agency also expects domestic demand to contribute positively to growth from this year onwards," Moody's Investors Service said in a report.

Prime Minister Mariano Rajoy's conservative government has fought to stabilize the public finances by raising taxes, freezing public salaries and curbing spending despite angry street protests.

It says its painful reforms are delivering results after the economy emerged gingerly in mid-2013 from its second recession in five years, following the collapse of a construction boom in 2008.

Growth remains slow, however, and the unemployment rate still tops 26 per cent.

Moody's raised Spain's sovereign credit rating, a key measure of financial and economic health, by one notch in February to Baa2, indicating it is creditworthy but vulnerable to economic shocks.

Moody's also assigned Spain a positive outlook in that upgrade and praised its banking sector overhaul and structural reforms, which include looser hiring and firing laws that sparked large demonstrations.

Spain's public finances are "on a gradually improving trend" but "still comparatively weak with high budget deficits and a rising public debt burden until after the middle of the decade", Moody's said on Tuesday.

The government says Spain's public deficit fell to 6.62 per cent of gross domestic product in 2013 from 6.84 per cent the year before, just shy of the 6.5-per cent target agreed with European authorities.

Spain's public debt reached a record of 93.9 per cent of gross domestic product in 2013.

"The elevated budget deficit and the resulting continuing upward trend in the public debt ratio remain Spain's main credit weakness," Moody's warned.

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