Spain’s rating outlook raised by S&P as growth returns

Rating firm predicts that Spain's economy will shrink this year

Spain’s rating outlook was raised to stable from negative by Standard & Poor’s as the economy resumes growth and the government pushes through spending cuts.

“Today’s rating action reflects our view that Spain’s external position is improving as economic growth gradually resumes,” the ratings company said Friday in a statement. S&P affirmed its BBB-/A-3 long and short-term ratings on Spain.

While Spain’s diversified and prosperous economy support its debt ratings, “strong headwinds” persist for growth as demand suffers due to high unemployment, reduced wages and spending cuts, S&P said.

The rating company predicts Spain’s economy will shrink 1.2 percent this year before growing 0.8 percent in 2014 and about 1.2 percent in 2015 on the back of robust exports.

Spain’s general government deficit will be about 6.5 percent of GDP this year, excluding the cost of the recapitalization of the banking industry, S&P said. The government will probably broadly meet its deficit target of 5.8 percent of GDP in 2014, the ratings company said.

“We consider that the current recovery does not have a meaningful impact on the pace of budgetary consolidation,” S&P said, adding that it sees net general government debt rising to 93 percent of GDP in 2016 from 83 percent of GDP in 2013.

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