Moody’s downgrades outlook to stable Spanish debt – The Economist

Moodys today held amid approved (Baa2) note the Spanish sovereign debt but lowered its outlook from positive to stable, given that “whatever the composition” of the next government are unlikely to further structural reforms to be adopted next three or four years.

“the political fragmentation that emerged from the elections on December 20 will not lead to a renewed acceleration of the momentum of reforms in Spain,” says Credit rating agency.

in addition emphasize that legislative improvements in recent years have had less impact than anticipated Moodys when he decided to positive outlook the Spanish note in 2014, and that is why now stoop to stable.

As an example, they complain that although they are legislated to that central government authorities have harder on regional when enforcing fiscal targets, “in practice has generally chosen not to use” these mechanisms.

the law of market unit was also “extremely slow”, and despite the pension reform, low inflation has reduced most of the impact of this measure, which funds Social Security is a “threat” to public finances.

in any case, warned that if these reforms have been implemented in recent years are reversed, this would add downward pressure on the note on its sovereign debt.

According to the agency, although the economic and fiscal challenges remain substantial in Spain, it is “unlikely” that the country implement significant further reforms, which has negative implications for growth and debt, they say.

in his view, this is due in part to the sense of “urgency” about the need for economic change has been dissipated by the economic recovery and in the absence of pressure markets

But also attribute it to the parliamentary fragmentation. “No matter how the current impasse is resolved, nor the composition of future governments” as Moodys believes there is little sign that the group rule implements further reforms as the most likely party to it does not have enough power to legislate.

for the agency, although the current Spanish growth is among the strongest in the eurozone (3.2 % in 2015), this is more due to a cyclical than structural issue, and its potential upside of GDP in the medium term is 2% given the levels of unemployment and accumulated debt, among other factors.

to Moodys, and this is another of the key factors of today’s decision, the Spanish public deficit will not meet the targets this year or the next, which will prevent public debt is reduced at around 100% GDP.

in addition, although calling it “highly unlikely at the moment,” the growing possibility that Catalonia becomes independent of Spain would be negative for the country note, given the economic importance and size of the community . autonomous

Moodys is of the three major agencies that gives lower the Spanish sovereign debt rating a notch below Fitch and Standard & amp; Poor’s.