DBRS maintains Portugal’s ranting with positive outlook on deficit and debt
DBRS, the Canadian financial rating agency that, in August, raised the Portuguese sovereign debt rating from B (high) to A (low), the seventh highest level, maintained the assessment of Portugal with a stable outlook, according to the published note. not place from the agency this Friday. This is the first evaluation this year of Portugal among the main agencies.
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The prospect of a continued decline in the deficit and debt combined with the recovery of employment, private consumption and tourism are positive signs for the DBRS. On the contrary, the impact of rising variable interest rates on housing loans is seen as an alarm signal.
“The confirmation of the rating and trend reflects the perspective of DBRS that the results of economic performance are balanced by the continuous improvement of metrics for public finances”, underlines the DBRS report.
After the strong contraction of GDP in 2020, “economic growth recovered strongly in 2021 and during the first half of 2022”, according to the same document.
DBRS recognizes that rising prices, exacerbated by Russia’s invasion of Ukraine, and the consequent rise in interest rates caused a sharp slowdown in growth in the second half of 2022.
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Despite the recurring economic shocks, “the budget deficit declined again in 2022 and remains below the Eurozone average”, highlights the DBRS. “Positive growth and the rapid recovery of public accounts will allow the weight of public debt in GDP to return to its sharply falling path”, further points out the rating agency, which expects that “public debt will fall to around 100% of GDP until 2025”.
DBRS considers that Portugal’s rating could improve through increased economic growth and the country’s resilience or through a further significant reduction in the public debt ratio.
The Portuguese economy suffered one of the biggest contractions in Europe in 2020, due to the sharp drop in private consumption and the collapse of tourism, caused by the covid-19 pandemic, stresses the agency. Despite this, the country quickly recovered in 2021 on the back of job growth, increased private consumption and the recovery of tourism, which followed for the first half of 2022, according to the DBRS analysis.
Since then, this recovery movement has been abandoned due to the increase in energy prices and interest rates, points out the financial rating agency. Although the waterfall fell in December 2022, it still fell at a high rate, at 9.8%.
In its latest Economic Bulletin, the Bank of Portugal (BdP) forecasts that GDP growth, having evolved by 6.8% in 2022, will slow down to 1.5% in 2023 and then recover to 2% growth in 2024.
The risks to the forecasts stem mainly from the evolution of prices and, consequently, from the rate of rise in interest rates, underlined by DBRS.
The agency considers that “the stress on household balance sheets due to the rapid increase in variable interest rates on housing loans is a major concern”. Measures to mitigate these impacts on family budgets involve “a healthy labor market, strong wage growth and reinforcement of accumulated savings in the private sector”.
The DBRS also warns that the good performance of the economy, especially in the medium term, “is associated with the effective absorption of funds from the European Union (EU), set at a total of 64 million euros (about 30% of GDP in 2020), over the next decade”.
The next agency that is expected to comment on Portugal is S&P, on March 10th.
The rating is an evaluation attributed by financial rating agencies, with a great impact on the financing of countries and companies, since it assesses the credit risk.
The rating agencies’ calendars are, however, purely indicative, and they may choose not to comment on the forecast data or proceed with an assessment that has not been scheduled.