High indebtedness still stops Moody’s from improving Portuguese, Spanish and Italian ratings

The high level of indebtedness of the Portuguese economy is still worrisome, especially for rating agencies like Moody’s, who has warned again that this will prevent them from improving the rating of the country.

The warning does not come at all as a surprise, and it has been often highlighted by Moody’s as one of the main reasons behind the agency’s decision to maintain the country’s rating. Other countries such as Spain and Italy, have received the same feedback as they both present high levels of government debt.

The warning was issued this Tuesday, and it is part of the agency’s analysis on the indebtedness level of Euro Zone member states. The outlook of these countries is stable and overall, the economy in the Euro Zone seems to present signs of steady growth which is largely motivated by a softening of the aggregate sovereign debt burden.

“While economic growth in the euro area will slow in 2019, at 1.9% it will remain robust enough to be credit supportive,” said Steffen Dyck, a Vice President and Senior Credit Officer at Moody’s. “However, mounting trade tensions and a slowing global economy are among prominent external downside risks to the benign macro-economic conditions we see for the euro area this year.”

The rating agency believes that the debt burden will continue to ease gradually, but it still warns that 84% of GDP represents a very high level of indebtedness, much higher than the levels recorded prior to the financial crisis.

Peripheral countries, such as Portugal, have received special attention from Moody’s in that context, as their high public debt levels present great constraints for the improvement of their ratings. “Elevated government indebtedness will remain a rating constraint for a number of euro area sovereigns such as Italy, Portugal and Spain”, the report shows.

On the 15th of February, Moody’s is expected to present a more detailed analysis of Portugal’s rating, and it will be the first rating agency to inform the markets about the Portuguese economy’s rating in 2019.

This happens four months after the agency improved the country’s rating to Baa3.