S&P maintains the A/A-1 rating for Spain but warns about pensions and debt

Inflation, debt and pensions. These are the three issues on which the credit rating agency S&P Global has just alerted Spain after you have decided to keep the country’s rating at A/A-1, with a stable perspective. “Despite political uncertainty, the competitive Spanish economy, driven by services, should register higher growth rates to the euro zone average in 2023 and 2024,” he says in a statement.

The confirmation of Spain’s rating reflects, according to S&P, the rpersistence of the Spanish economy facing a series of disturbances. According to the rating agency, the strong tax collection and the good results of the labor market, in a context of external deleveraging of the private sectorsupport the solvency of Spain.

Thus, S&P predicts that the Spanish economy will expand more rapidly than the euro area average, given the resilience of the labor market, and despite forecasts for somewhat higher oil and gas prices for the remainder of 2023 and into 2024.

All this despite uncertain political scenario after the elections of last July 23. In this sense, the agency has indicated that any coalition agreement to form a minority government would probably involve “complex political concessions that could make the next government vulnerable to the demands of a few smaller parliamentary groups.” If negotiations failed, Spain would repeat national elections early next year.

“Until now, the political paralysis has had minimal effects on the Spanish economy,” the rating agency has assured. For 2023, S&P estimates a growth of the Spanish economy of 1.6%, while for next year it has projected a slight slowdown, before a growth 2.3% in 2025, supported by greater implementation of EU Recovery and Resilience Facility funds.

Debt evolution

At the same time, it is expected that the gross debt of Public Administrations spanish will be located in 2023 around the 108% of GDP12 percentage points above pre-pandemic levels, and that much of it is in the hands of non-residents.

“The future pace of debt reduction depends on a greater budgetary consolidationthe prospects for economic growth in Spain and the absence of new disturbances,” the note states.

Even so, it is expected gradual budgetary consolidation between 2023 and 2026although the agency has warned that the indexation of pension spending to inflation will continue to weigh down budgetary results, preventing the reduction of Public Administration debt.

The stable outlook reflects balanced risks to Spain’s solvency, given high public debt, weakening demand in major European trading partners and political uncertainty.

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