Spain: Improving Sovereign Credit Risk Owes More To Economics Than Politics

The Spanish economy grew by 0.8% in Q1 2017, an annual rate of more than 3%, higher than recent data for Germany, France and the Netherlands. Unemployment has been trending down and currently stands at a post-crisis low of 18%. Spain suffered more than most during the Eurozone downturn but is now in the economic vanguard.

But political uncertainty is rising: Rajoy’s minority PP Government faces a vote of no confidence on 13th June and the Catalan government is taking active steps towards greater independence. Unstable politics is less of an issue in Spain than in some other countries. The Credit Benchmark Consensus (CBC*) has been trending steadily better with a consensus upgrade looking likely. S&P rate Spain as BBB+ and moved to a positive outlook in March.

Beyond developed economies, Credit Benchmark research shows that Unemployment, GDP per capita, improving external balances and Ease of Doing Business metrics provide a credible proxy for Sovereign Credit Risk for a broad range of otherwise unrated countries. More details in Measurement of Sovereign Credit Quality White Paper.

*CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s.

Disclaimer: Credit Benchmark does not solicit any action based upon this report, which is not to be construed as an invitation to buy or sell any security or financial instrument. This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of a particular person who may read this report.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.