Spain's Rating Lifted by S&P With Prospect of Further Upgrade

(Bloomberg) -- Spain's credit rating was raised one level to A- by S&P Global Ratings, which cited expectations that economic growth will outpace the euro area and that the government's budget deficit will shrink.

“We raised our ratings on Spain in view of the country's continuously strong economic performance, accompanied by a solid current account surplus and ongoing budgetary consolidation,” S&P said in a statement Friday announcing the shift to its seventh-highest ranking.

Spain's economy is recovering from a property crash that forced a banking bailout back in 2012 and has expanded for 18 quarters in a row. The Bank of Spain earlier this week raised its growth estimates through 2020 and Prime Minister Mariano Rajoy said Thursday that the country had met its 2017 deficit reduction target agreed with the European Union.

The ratings firm, which previously had a BBB+ rating for Spain, also maintained its positive outlook on the nation, meaning it could lift its credit score further within the coming two years.

Such an upgrade could come “if the government achieves greater consolidation of public finances than we currently expect, and we observe further improvement in the monetary transmission mechanism,” S&P said. Further easing of political tensions in Catalonia would also support an upgrade, according to the firm.

This latest upgrade by S&P follows a similar move in January by Fitch Ratings, which raised its score for Spain to A- with a stable outlook. Moody's Investors Service, which has the nation at Baa2, will give its next rating decision on April 13.

The Bank of Spain this week predicted growth of 2.7 percent in 2018, having previously estimated 2.4 percent. The central bank said risks from the Catalan independence crisis last year hadn't fully materialized while exports and looser fiscal policy will support continued expansion.

Despite the bullish assessment, the Bank of Spain also warned about risks of fiscal slippages this year that could see the pace of deficit reduction slowing.

--With assistance from Sarah McDonald

To contact the reporter on this story: Maria Tadeo in Madrid at mtadeo@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Charles Penty, Ven Ram

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