Spain and Portugal are better placed than Italy when faced with the end of the qualitative easing programme from the European Central Bank, Moody's said this Thursday.
Portugal, Spain and Italy, according to Moody’s new report published this Thursday, should bet in diversifying their “funding sources to meet their still very elevated gross borrowing requirements”, now that the ECB’s assets purchase programme is near its end.
Moody’s also noted that with debt-to-GDP ratios close or above 100%, together with budget deficits, Spain and Italy are facing gross borrowing requirements of around 17 and 18% of GDP, respectively in 2019-2020. As for Portugal, the rating agency noted that the expected gross borrowing requirement stands at 13-14% of GDP in the same period.
Due to Spain’s higher credit quality and robust demand for non-resident investors and Portugal’s increasingly diversified sources of funding these two countries present better chances at facing the “transition to a post-quantitative easing environment”, whereas Italy faces comparatively higher risks, given the “sell-off by non-resident investors in May”.
This makes Moody’s analysts conclude that “Spain and Portugal are well placed to continue to manage the transition to a post-QE environment”. As for Italy, it will face more significant challenges driven by “political and economic developments rather than by the withdrawal of ECB support”.
In June 2018, the ECB announced it would end the stimulus to the eurozone through its bond-buying programme until December 2018, provided that the medium-term inflation outlook was confirmed.
After spending the final three months of 2018 buying at a reduced pace, the ECB is now phasing-out its net asset purchases, acquired after four years of implementation of the Quantitative Easing programme ( Public Sector Purchase Programme — PSPP).
Also, the ECB announced that it would maintain a certain flexibility in their bond reinvestment plans last week and Reuters said that the Portuguese and Irish 10-year bonds “rallied sharply, outperforming their eurozone peers” in reaction to the news.