Moody’s backs Spain’s ‘improving’ economy

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.

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

"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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Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).