Moody's Boosts Spain's Credit Rating Outlook on Growth Prospects
Moody's Investors Service increased Spain's credit rating outlook to stable from negative amid evidence of a sustained economic rebalancing and improving growth prospects.
The nation's Baa3 rating, the lowest-investment grade ranking, was also affirmed by New York-based Moody's, according to a statement yesterday.
Spain's economy emerged from a two-year recession in the third quarter as household spending grew for the first time in more than a year, data showed last week. The government forecasts that next year economic growth will be strong enough to create jobs, even as the International Monetary Fund predicts unemployment won't fall below 25 percent until 2018.
A decrease in market access risks for Spanish sovereign debt and the lower risk of contagion from negative events elsewhere in the euro region than at the time of Moody's last rating action in October 2012 contributed to the revision. A significant reduction in contingent liabilities for the nation from the Spanish banking sector also spurred the improved outlook, Moody's said.
'Moody's now believes that any further potential recapitalization needs of the Spanish banking system would be limited in size and would be unlikely to derail the slowly improving trend in the country's public finances,' according to the release.
Shrugged Off
Investors have largely shrugged off such announcements, reflecting a shift from reliance on ratings companies to in-house analysis. U.S. Treasuries and French debt securities have gained since losing their top credit ratings. Yields on sovereign securities last year moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg and published a year ago.
Even so, the yield on Spain's 10-year benchmark bond rose four basis points yesterday to 4.18 percent in Madrid. The bonds yielded a euro-era high of 7.75 percent in July 2012.
On Nov. 29, Standard & Poor's raised its outlook for Spain's debt to stable from negative, while affirming the country's long-term credit rating at BBB-, the lowest investment grade.
The rating action 'reflects our view that Spain's external position is improving as economic growth gradually resumes,' S&P said.
Other signs this week reinforce a better outlook for Spain: a report yesterday showed Spain's service industry unexpectedly grew in November, the first expansion in three months, underpinning Prime Minister Mariano Rajoy's forecasts that the nation is recovering from its economic slump.
To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
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