International rating agency Standard & Poor's (S&P) upgraded Spain's sovereign credit rating from "BBB-" to "BBB" on Friday (May 23), while Fitch upgraded Greece's sovereign credit rating from "B-" to "B". Both agencies confirmed a stable outlook, signaling further recovery for these two crisis-hit countries.
Fitch expects Greece's Gross Domestic Product (GDP) to grow by 0.5% this year, and by 2.5% in 2015 and 2016.
Since receiving the first loan from a total of 240 billion euros in aid in 2010, Greece has made significant progress in improving its economic situation. The spending cuts and reforms implemented by Greece have curbed the country's economic growth, pushing the unemployment rate to a record 28%. Meanwhile, Spain fell into trouble saving its banking sector after the collapse of its real estate market. The country was also forced to accept a bank bailout loan program from its Eurozone allies.
Regarding Spain, S&P stated that the outlook is stable, and the rating upgrade reflects that the risks to the country's credit rating will remain balanced over the next two years.
S&P's Director of Sovereign Ratings predicted that the upgrade of Spain's rating "reflects the results achieved by the country in structural and labor reforms," implying an increase in the country's economic growth rate and competitiveness.
At the same time, S&P also revised up its forecast for Spain's real GDP growth for 2014-16 from 1.2% to 1.6%. However, the agency also pointed out that there are risks to Spain meeting its budget deficit-to-GDP ratio targets of 4.2% and 2.8% in 2015 and 2016, respectively.
It is worth noting that although Spain's reforms have led to a rating upgrade, the country's debt remains near historical highs. Debt remains one of the key weaknesses in Spain's credit profile. When Spain joined the Eurozone in 1999, its combined public and private sector debt accounted for 150% of GDP. The latest data shows that this ratio has doubled to 300%. In the Eurozone, only Ireland and Portugal have higher debt ratios than this level, so there is still a long way to go for deleveraging.
