Spain has "good track record" in recent years in meeting its fiscal objectives, according to DBRS

The agency, after raising Spain’s rating, points out the importance of complying with the fiscal consolidation plan and executing European funds

Dec. 6 () –

The Spanish economy can continue to grow substantially above the euro zone average in the future, driven by tailwinds from the labor market, European funds and the recovery of domestic demand, according to Morningstar DBRS, for which it is positive The macroeconomic context invites us to deepen fiscal consolidation since, despite political fragmentation, Spain in recent years “has a good track record in meeting its fiscal objectives.”

In an interview with Europa Press after raising Spain’s rating last week to ‘A(high)’ with a stable outlook, Jason Graffam, the agency’s principal analyst for Spanish sovereign debt, underlines the importance of “not claiming victory.” “and adopt a countercyclical stance to advance the consolidation of public accounts “especially in such a good macroeconomic context for Spain.”

In this sense, he considers “sustainable” the good pace of growth of the Spanish economy which, after a parenthesis in the last quarter of the year with an expansion “a little” less strong than anticipated due to the effect of DANA, will recover in the next quarter any negative impact without major structural damage.

In this way, in line with the projections of the main international economic institutions, it also expects GDP growth of around 3% this year and an average of 2% during 2025-2027, “well above the eurozone”, whose expansion has many headwinds, while Spain is benefiting from tailwinds.

“There are two stories,” explains Graffan, referring to the narrative of recent years, where tourism has captured the attention, although the growth dynamic “is much broader,” while looking forward to the lever that will push the economy is no longer so much external demand, but rather domestic demand, without forgetting the boost from European funds, which represents a large enough capital to improve the structure of the economy.

However, he considers that there are also weaknesses and challenges, such as the labor market, with a high level of structural unemployment, precariousness among young people, as well as temporary employment, although it has improved considerably, while another front would involve public accounts, ” which is another example of improvement, but from a bad starting point.

With the expectation of a deficit this year of 3% of GDP, Spain is no longer an isolated negative element and is not left behind in comparison to the European average, after many years of registering deficits several points of GDP above the average of the euro zone, which for the DBRS analyst is another example of improvement.

However, he warns that “it is important not to claim victory”, since public accounts need to be further consolidated and especially in such a good macroeconomic context for Spain.

In this sense, based on the consolidation plan presented by the Spanish Government to Brussels, Graffam believes that the objective of reaching a deficit of 2.5% of GDP in 2025 is more credible than the 0.8% planned for 2030. , although it is considered normal to have more clarity for the coming years than for the end of the forecast horizon.

In this way, in line with the Airef, it defines the document more as a series of promises than a plan, although it emphasizes that having the document is important because from it, the objectives, expectations can be managed.

“How exactly are they going to do it? I think it is not so clear and that is the work ahead,” he points out, although he remembers that Spain “in recent years has had a good track record in meeting its fiscal objectives.”

Likewise, although it points out that the contemplated objectives could be more ambitious, from the point of view of a credit agency, meeting the objectives, even if they are less ambitious, is very important.

CONSOLIDATION AND EUROPEAN FUNDS.

In the opinion of DBRS’s main analyst for Spanish sovereign debt, the issue would not be so much about thinking about major reforms, but about advancing in two quite important tasks for the Spanish political class, such as complying with the fiscal consolidation plan, which is to control the growth of expenses and also manage European funds, which must be absorbed before 2026.

“It is not an easy task,” acknowledges the expert, stressing that if this is done well, it is a great opportunity for the country to improve its structure and increase its production capacity.

On these issues, Graffan admits that political fragmentation can have several consequences, although he emphasizes that, as a debt analyst, what interests him is whether it prevents the execution of the Government.

“Until today it seems that, although there is so much fragmentation, they have been able to advance the necessary legislation to continue advancing in these two lines,” he acknowledges in reference to the tax reform approved a few weeks ago, which opened access to the next tranche of European funds.

“There are risks of this fragmentation, but to date it has not prevented us from moving forward with these tasks,” says the analyst, who summarizes the situation in which Spanish politics can be disorderly, as in many other countries, “but there are results.” “.

RATING GAP.

After Morningstar DBRS decided last week to raise Spain’s sovereign debt rating one step, to ‘A(high)’ with a stable outlook, the Spanish solvency score has barely increased compared to the pre-pandemic level, when It was ‘A’ with a positive trend, and is well below that assigned to other neighboring countries such as France, which saw its ‘AA(high)’ rating confirmed in September with a stable trend.

On this matter, Graffam defends that the rise and fall of ratings “is a gradual process” and the action adopted last week with Spain’s sovereign rating “is closing the gap” with other countries.

In any case, he emphasizes that it is part of the nature of a rating agency to look closely at the ‘track record’, the history, before improving the grade.

“What the market does not want from us, from a rating agency, is a lot of volatility, going from top to bottom, because there are other indicators and there is more information in the market that gives you a little more immediate perspective, but that does not is necessarily the job of a bond rating agency,” he explains.

In this way, it ensures that when the agency decides to move the rating, up or down, it is because it considers that there are more in-depth, “more structural” changes, so that certain slowness that exists is by design.