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Fitch upgrades Spain credit rating

AFP · 26 Apr 2014, 13:17

Published: 26 Apr 2014 13:17 GMT+02:00

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The eurozone's fourth-largest economy emerged only gingerly from a two-year downturn in mid-2013.

Despite the blight of a nearly 26 percent unemployment rate, however, fresh data appear to show Spain enjoying a modest but gathering recovery from five years of stop-start recession.

Fitch lifted Spain's creditworthiness score to BBB-plus from BBB, indicating the country has a "good credit quality" with a low risk of defaulting on its foreign borrowing.

The outlook for the rating was stable, it said.

"Risks to Spain's creditworthiness have decreased," Fitch said in a report.

"Financing conditions have improved, the economic outlook is more certain, and the risk of Spanish banks posing an additional burden on the sovereign has diminished."

Fitch praised Spain's "strong" deficit-cutting record despite weak economic activity and fierce public protest.

Spain's government hailed the upgrade, the second since Moody's Investors Service did the same in February.

"We highly value these advances, especially the recognition of the government's commitment to reform," the Economy Ministry said in a statement.

"The continuity of these reforms will bolster the economic recovery, which will help to contain the deficit and allow a net creation of employment this year," the ministry said.

On the eve of the Fitch announcement, the Bank of Spain said initial data showed quarterly economic growth of 0.4 percent in the first three months of this year, the fastest in six years.

"We have rebuilt our economy in record time, we have better foundations and the wind is blowing in our favour," Prime Minister Mariano Rajoy said Thursday.

The Spanish leader said the economy would exceed the government's official forecasts for growth of 1.0 percent in 2014 and 1.5 percent in 2015, tipping an expansion next year "well above" the target.

Spain's government points to the changed circumstances since it resisted pressure for an international bailout in mid-2012 as sovereign borrowing costs soared.

Investors, once worried about whether Spain could repay its debts, took heart from the European Central Bank's vow in late 2012 to come to the rescue of stricken eurozone members if needed.

Rajoy's austerity measures and labour market reforms helped to consolidate financial market support further.

In the latest sign of changing sentiment, the Treasury managed to raise €5.6 billion ($7.7 billion) on the bond market Thursday with the benchmark 10-year yield sliding to 3.059 percent from 3.291 percent on April 3rd.

Story continues below…

"The goal is to achieve two years in a row of growth, with net job creation, and that will be the exit door from the Spanish crisis," Economy Minister Luis De Guindos said this week.

Nevertheless, jobs growth will be "clearly insufficient", he said.

Latest revised data Thursday showed the unemployment rate in the final quarter of 2013 stood at 25.73 percent.

"A country with an unemployment rate of 26 percent is starting at a terrifying level," de Guindos said.

The Bank of Spain is predicting an unemployment rate still at 25 percent in 2014 and 23.8 percent in 2015.

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