Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. 

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Kingdom of Spain (long-term local and foreign-currency issuer and senior unsecured debt ratings: A-/Stable; short-term local- and foreign-currency issuer ratings: S-1/Stable) on 17 April 2023.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Spain’s A- long-term ratings reflect the following credit strengths: i) a large and diversified economy, underpinned by a shift towards high value-added sectors, facilitating external rebalancing; ii) a favourable public debt profile with long maturities, contributing to debt affordability; and iii) a robust institutional framework, reinforced by the country’s membership in the euro area, which enhances its resilience to external shocks.

The Spanish economy displayed resilience despite the ongoing Ukraine conflict. The GDP growth rate remained unchanged from the previous year, with a 5.5% increase in 2022. This growth was driven by a strong recovery in tourism and household consumption in H1 2022, which offset a slowdown in domestic demand in H2. However, at end-2022, real GDP remained 0.9 pp below pre-pandemic levels, indicating a slower economic recovery compared to peers in the euro area. Scope projects that the economic output will exceed its pre-pandemic level by the second half of 2023. Spain, with its significant renewable energy production capacity and substantial regasification infrastructure, was able to withstand last year's energy shock, underscoring its comparative advantages. Scope anticipates a gradual recovery in growth over the upcoming months, projecting a growth rate of 1.6% in 2023 that is expected to accelerate to 2.1% in 2024.

Despite measures to mitigate the energy crisis impact on the private sector, which amounted to 1.5% of GDP, the government deficit decreased to 4.8% of GDP in 2022, driven by robust revenue growth. However, Scope anticipates a moderate decline in the fiscal deficit to 4.4% of GDP in 2023, with continued growth positively impacting fiscal receipts. Nonetheless, increasing pension payments, sustained primary deficits, and growing debt-servicing costs will continue to pressure public finances, resulting in slower consolidation and a further moderation in the headline budget to approximately 3.7% of GDP in 2024. Driven by strong nominal growth, the debt-to-GDP ratio declined by 5 percentage points to 113.2% in 2022, but remains 15 points higher than pre-pandemic levels. The ratio is expected to further decrease to 111.4% in 2023 and stabilise around 109% until 2027.

Spain’s ratings are constrained by challenges related to: i) high public debt levels; ii) elevated structural unemployment; and iii) long-term budgetary pressures caused by accelerated ageing dynamics.

The Stable Outlook reflects Scope’s view that risks to Spain’s ratings over the next 12 to 18 months are balanced.

The A- ratings and Stable Outlooks could be upgraded if there was a notable improvement, individually or collectively, in: i) growth prospects, supported by, for example, reform progress; and/or ii) public finances, putting public debt on a firm downward trajectory.

Conversely, the ratings/Outlooks could be downgraded if: i) low GDP growth and/or protracted fiscal deterioration resulted in weaker debt sustainability; and/or ii) reforms were delayed, adversely impacting the economic and fiscal outlooks.

For the updated report accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Jakob Suwalski, Director

© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.