Fitch maintains his note on Spain’s debt because of the “high added value” of its economy

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The rating agency believes that the “good behavior” of income will allow the government deficit to be reduced to 4.5% of GDP this year, but warns of the “substantial” increase in spending

Rating agency Fitch Ratings this Friday confirmed the ‘A-‘ solvency rating with a stable outlook for Spain’s long-term sovereign debt, as announced by the risk rating agency. Among the factors on which he bases his assessment, he emphasizes that the Spanish economy is “of high added value”, with “solid governance indicators and a ranking in terms of human development higher than the average of the countries in its group” . , although has clarified that “high levels of government debt constrain ratings”.

According to the agency, “robust nominal GDP growth” will lead to “a gradual decline in government debt relative to GDP through 2023 and 2024”. It thus makes a lower estimate of the government deficit for this year -4.5% of GDP compared to 5.1% in the previous assessment in June – supported by “the good behavior of revenues” and has warned that government spending will will rise “due to salary increases for public sector workers, higher pension spending due to inflation indexing and continued support for households and businesses to mitigate the impact of rising energy prices.

However, it points out that “as support measures are withdrawn and the economy recovers, the deficit will fall to 4.2% of GDP in 2024”. “This assumes that the momentum of government spending continues to some extent and that revenues as a percentage of GDP fall again,” he stressed. On the other hand, the agency has warned of the “degree of uncertainty” that Spain’s election cycle, which begins next year, may cause.

As for government debt, they estimate that it will reach 113.8% relative to GDP at the end of the year, compared to 118.3% at the end of 2021. “We expect the debt ratio to stabilize around 111 -112% in 2024-26. This means that further consolidation measures are likely to be needed to put the debt ratio on a solid downward path,” he stressed.

Elsewhere, Fitch warned that consumer price inflation remains high, although it has eased from the peak of 10.7% a year for the harmonized HICP measure to 6.8% in November. “An underlying inflation measure that excludes food and energy points to continued inflation, with an annual rate that has barely changed since July,” he explained.

For this reason, they expect inflation to reach 4.3% by the end of the year and “continue to fall throughout 2024, but remain above the European Central Bank’s (ECB) target of 2%.” “The main risk to inflation is the volatility of energy prices, which could rise again and affect estimates of headline inflation,” he warned.

On the other hand, according to the agency, household debt will increase with rising interest rates, “as mortgages continue to be predominantly variable-rate.” “This exposes households to higher debt payments, which are likely to rise as a percentage of disposable income at a time of weak real income growth,” he added.

Source: La Verdad

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