Standard & Poor’s raised Spain’s debt rating on Friday by one notch to BBB+, lauding government labour market reforms that improved the country’s economic prospects, handing Prime Minister Mariano Rajoy a fillip a day after he called a general election for December 20.
Along with announcing the upgrade with a stable outlook, the agency raised its forecasts for annual growth in Spain in 2015-2017 to an average of 2.7 percent, from 2.2 percent in its previous forecasts made in April, reflecting the effects of labour and other reforms.
“Spain’s economy has benefited from two rounds of labour market reforms since 2010, which have improved competitiveness of the export and services sector, and from easier financial conditions,” it said in a statement.
Spain first reformed its labour laws in 2010 under the previous Socialist government mainly be reducing severance payouts and making it easier to lay off workers temporarily during bad times.
This was followed by another reform by conservative Prime Minister Mariano Rajoy in 2012 that also made it even cheaper to easier to fire workers and which limited power of unions to negotiate collective-bargaining agreements across entire industries or regions.
“The Spanish economy is more open than it was seven years ago. Although external risks continue to overshadow any growth model based on net exports, Spain has a strong track record of gaining international market share in goods and services,” the ratings agency said.
Standard & Poor’s predicted exports will represent about 34 percent of Spain’s GDP by the end of 2015, up from 25 percent in 2008.
The collapse of a decade-long property bubble in 2008 plunged the Spanish economy, the eurozone’s fourth largest, into its worst economic downturn since Spain returned to democracy following the death of longtime dictator General Francisco Franco in 1975.
The country returned to growth in 2014 with an expansion of 1.4 percent — the first year since 2008 in which there has been full-year growth — although the unemployment rate stood at 22.4 percent in the second quarter, the highest level in the European Union after Greece’s.
The government predicts the economy will expand by 3.3 percent this year and by 3.0 percent in 2016.
– ‘Sign of confidence’ –
Economy Minister Luis de Guindos said Standard & Poor’s decision to raise Spain’s debt rating “was a sign of confidence in the Spanish economy and its future.”
While Standard & Poor’s said employment growth should continue to boost consumer spending, thus tax receipts, it said “further budgetary tightening will likely be necessary” if Spain is to meet its target of a public deficit of 0.3 percent of GDP by 2018.
The Spanish government’s forecast for the public deficit — a key indicator of financial stability that measures how much spending exceeds income — stands at 4.2 percent of GDP for this year.
Polls suggest Rajoy’s conservative Popular Party may win most seats but will likely lose the majority it secured in 2011.
Rajoy won a resounding victory in 2011 as voters turned against the ruling Socialists for their management of the financial crisis that rocked the country in 2008.
Catalan demands for independence will likely loom large over the upcoming polls after separatist parties on Sunday won Catalonia’s regional election, a vote they had billed as a de facto referendum on breaking away from Spain.
Standard & Poor’s said it believed that “tensions between the central government and regional authorities will gradually subside, and that the region of Catalonia will remain part of Spain.”