From a pure economic perspective, we argue Spain has moved from the periphery to a semi-core member of the eurozone. The IMF estimates Spain’s potential growth to have improved from 0% in 2014 to 1.5% this year. In this sense, the structural reforms put in place starting in 2009 have contributed to a fair degree of competitiveness gains and higher potential growth.
More importantly, the market is likely to trade Spain favourably in the coming year. A potential catalyst is likely the S&P’s review of Spain, currently BBB+ with positive outlook, on 23 March 2018.
The growth outlook remains robust, and the Catalonia-Madrid tensions have dwindled; we believe the macro risks have receded sufficiently for the agency to upgrade Spain to A-. With two rating agencies in A-range (Fitch upgraded Spain to A- on 19 January), we believe the market is likely to price Spain as an A credit.
Rebecca Braeu – head of Sovereign Credit and strategy, Mellon
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