Fitch Maintains Spain Ratings

Fitch Ratings left is ‘BBB’ rating on Spanish debt unchanged following last week’s proposed 2013 government budget. The ratings agency also maintained its ‘negative’ outlook on the country.

Here’s part of Fitch’s assessment:

The government restated its deficit target for next year at 4.5% of GDP. We think this target is likely to be missed (we forecast 5%); growth is likely to undershoot the government’s expectations (we forecast negative 1.5% for next year, against the government’s negative 0.5%) and unemployment is likely to overshoot slightly. While the rating incorporates this slower deficit reduction, significant additional slippage would be ratings negative. …

[T]he estimate … that Spanish banks will need €59.3bn (pre-tax) in capital is close to our own estimate made in June, which was a factor behind the downgrade of the sovereign to its current rating level. Significant developments and announcements still to come mostly fall into two categories: the potential burden-sharing of bank support with the ESM, and the possibility of an ESM/ECB precautionary bond-buying programme.

The nature and scope of the transfer of bank support to the ESM is yet to be decided. We have not explicitly factored in the public debt relief that would arise from a transfer of Spanish bank stakes to the ESM, which is a potential positive for Spain’s credit profile.

There’s nothing particularly surprising about Fitch’s statement. Few people expect Spain to reach its deficit target this year or next. The bank bailout estimate came in about as expected, and the only different thing is a secessionary movement in Catalonia, one of the country’s biggest spending regions.

Paul Ausick