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S&P Retains Spain’s Debt Rating, Warns of Catalonia Tensions

S&P Retains Spain’s Debt Rating, Warns of Catalonia Tensions
S&P Retains Spain’s Debt Rating, Warns of Catalonia Tensions

The ratings agency S&P maintained Spain’s investment-grade sovereign credit rating Friday, but warned tensions between Madrid and Catalonia could weaken growth prospects if left unchecked. Catalonia was holding an independence referendum on Sunday that is opposed by the central government, in one of the greatest political crises to hit the country since the restoration of democracy in 1975, AFP reported.

S&P Global Ratings said Friday it was affirming its BBB+/A-2 long-term sovereign debt rating and said the country had a positive outlook, with its economy expected to grow by about 3% this year—above the eurozone average.

“The positive outlook signifies that we could raise our ratings on Spain within the next 18 months if the country’s strong economic performance continued,” the company said in an analysis of its ratings decision. However, it added continued turmoil could see the skies turn a little darker.

“We could also revise the outlook to stable if the current tensions between the central government and the regional government of Catalonia escalated and started weighing on business confidence and investment, leading to less predictable future policy responses.”

S&P said Spain’s minority government had limited ability to carry out policies, like budgetary and structural reforms, because of the country’s fragmented parliament. Catalonia, whose leaders are pushing for secession from Spain, is one of the powerhouses of the Spanish economy, buoyed by industry, research and tourism but burdened with a heavy debt.

Contributing 19% of Spain's GDP in 2016, Catalonia rivals Madrid for the distinction of being the richest region in the country. Like in Madrid, unemployment is also lower than in the rest of the country: 13.2% in the second quarter of 2017 compared to 17.2% nationally.

It is fourth in terms of GDP per capita with €28,600 ($33,600), after Madrid, the northern Basque Country and neighboring Navarra. GDP per capita in Spain overall is €24,000.

Catalonia is by far Spain's top exporting region, with a quarter of all goods produced there sold abroad in 2016 and in the first quarter of 2017.

It attracted some 14% of foreign investment in Spain in 2015, in second place after Madrid, which received a huge 64%, but far ahead of all the other regions, according to the economy ministry's latest data. Several large companies have their headquarters in Barcelona: textile group Mango, Spain's third largest bank CaixaBank, Gas Natural, highway giant Abertis or perfume firm Puig, which owns Nina Ricci, Paco Rabanne and Jean-Paul Gaultier.

 

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