Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic 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 rating’s 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 announces the result of each monitoring review on its website and/or on its subscription platform ScopeOne.

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 February 2025.

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 ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

Spain’s A/Stable long-term credit ratings are supported by: 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.

Conversely, credit challenges associate with: i) high public debt levels; ii) elevated structural unemployment; and iii) long-term budgetary pressures caused by accelerated ageing dynamics.

Spain’s economy grew by 3.2% in 2024, significantly above the euro area average of about 0.9%, reflecting robust services exports (both tourism and non-tourism) as well as strong private consumption and investment. This performance is supported by a strengthening labour market, where structural reforms have reduced the unemployment rate to a multi-decade low of 10.6% in Q4 2024. Total employment rose by 5.8% from Q4 2019 to Q4 2024, driven by increasing participation rates and positive net migration. Scope projects 2.5% growth this year and 2.0% in 2026, bolstered by resilient consumer demand and robust investment, further supported by the implementation of RRF-funded projects and accommodative borrowing conditions. Nevertheless, demographic challenges continue to weigh on Spain’s long-term growth prospects, exerting sustained pressure on public finances over time.

Scope estimates Spain’s budget deficit at 3.0% of GDP in 2024, down 0.5pps from the previous year. This reflects strong revenue growth, supported by high social security registrations and buoyant consumption, alongside contained expenditure growth. Scope projects the deficit to decline to 2.5% in 2025 and further to 2.2% in 2026, driven mainly by central government measures, enabling regional governments to maintain their current fiscal positions. Spain’s debt-to-GDP ratio declined to 101.8% last year (down 3.3pps from 2023) and Scope expects it to follow a gradual downward trajectory, reaching 100% by end-2025 and 93% by 2029.

The 2025 budget remains unapproved due to ongoing parliamentary frictions. If no agreement is reached, the government may be forced to extend again the 2023 budget further. This would have no direct implications on the revenue side, as tax reforms aimed at improving compliance and supporting fiscal consolidation are ongoing. On the expenditure side, the existing spending limit helps contain overall expenditure growth but also the government’s room for policy manoeuvre. Still, RRF funds to be implemented at scale this year and in 2026 mitigate the investment risks associated with the absence of a new budget. Finally, Spain demonstrates a good record of fiscal discipline and has consistently outperformed its deficit targets for four consecutive years, with actual outcomes below initial projections since 2020. However, certain political initiatives may become more complex to implement without an approved budget, including higher security and defence expenditure to be expected with recent geopolitical developments.

The Stable Outlook represents the opinion that risks for the ratings are balanced.
Upside scenarios for the ratings and Outlooks are (individually or collectively):

1. a marked improvement in external competitiveness resulted in a stronger external position;
    
2. government debt-to-GDP were placed on a firm downward trajectory; and/or
    
3. economic growth were sustained at high levels, for instance driven by improved labour markets and diversification into emerging sectors.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. economic growth or public finances weakened, reversing the declining debt-to-GDP trajectory; and/or
    
2. domestic political risk increased significantly, materially deteriorating Spain's economic conditions and public finances.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) 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, Senior Director

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