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Investing.com -- Fitch Ratings has upgraded Spain’s Long-Term Foreign-Currency Issuer Default Rating to ’A’ from ’A-’ with a Stable outlook, citing the country’s economic outperformance and reduced external vulnerabilities.
The rating agency also upgraded Spain’s Short-Term IDR to ’F1+’ from ’F1’ in its Friday announcement.
Spain’s economy has exceeded expectations and significantly outpaced other major eurozone economies, supported by large migration inflows and strong, increasingly diversified services exports. Fitch raised its real GDP growth forecast for Spain to 2.7% in 2025 and 2.0% in 2026, reflecting stronger-than-expected quarterly growth in the first half of 2025.
The services sector has strengthened due to a rebound in tourism and solid performance in non-tourism services such as information communication technology and professional services. The manufacturing sector has benefited from increased solar and wind generation, which has helped lower electricity prices to below the eurozone average.
Fitch revised Spain’s potential growth estimate to 2% from 1.4%, mainly due to rapid expansion in labor inputs and supported by higher total factor productivity. Strong labor force growth reflects significant migration inflows, mostly from Latin America.
Labor market conditions have strengthened significantly, with activity and employment rates reaching record highs. The unemployment rate stands at about 10.4% as of July, which remains the highest in the euro area despite recent progress in reducing it.
Spain’s net external debt declined to 44% of GDP at end-2024, down from a peak of 95% in 2013. The current account balance improved to 3.1% of GDP in 2024, supported by a stronger service surplus from tourism and diversification into non-tourism exports. Fitch expects current account surpluses to average 2.6% of GDP between 2025 and 2027.
The rating agency forecasts the general government deficit will fall to 2.6% of GDP in 2025 from 3.1% in 2024, driven by the absence of one-off expenses and continued revenue growth offsetting a gradual increase in interest costs. Spain will meet its NATO defense spending target of 2% of GDP this year, up from 1.4% in 2024.
Fitch projects the general government debt ratio will fall from 101.6% of GDP in 2024 to 100.7% by 2027, and below 100% thereafter, supported by sound nominal GDP growth. This remains high relative to the ’A’ category median of 53.7%.
The ratings are supported by governance indicators consistent with the ’A’ rating category and eurozone membership. However, Spain’s center-left minority government faces challenges securing parliamentary support, including for budget passage since 2023.
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