DBRS maintains stable outlook for the Portuguese economy, with some challenges ahead

  • ECO News
  • 30 January 2019

DBRS' last rating of the Portuguese economy has kept the country at BBB level, with a stable outlook. The next evaluation is scheduled for October 5.

Portugal’s rating is still stable, and it has been benefiting from an improvement of the country’s macroeconomic indicators, although debt and non-performing loans (NPL) are still high, according to a report from the Canadian agency, DBRS.

“Our outlook at the moment is stable, and our analysis of the country suggests that risk levels are moderate”, the vice-president for sovereign debt ratings at DBRS and in charge of Portugal’s evaluation, Jason Graffam, told the Portuguese news agency, Lusa, in London.

This Wednesday, the agency hosted the “DBRS on Non-Performing Loans: Emergence of a New Asset Class” event in London, and the topics discussed surrounded DBRS’ Sovereign, Financial Institutions and Structured Finance teams’ evaluation of performance and outlook for the European NPL market in 2019 and further.

Improving certain indicators will help to boost the Portuguese rating even further, DBRS’ analyst admitted to Lusa’s reporters. “Portugal must pay special attention to the levels these indicators present, and their evolution. In terms of levels, the country is still facing significant challenges, with high public debt, big levels of corporate debt and high NPL ratios”, Graffam added.

However, if we look at the evolution of these indicators, the trend is of sustained, drastic improvement: for instance, debt to GDP ratios have dropped significantly, by 10 percentage points, over the last two years.

DBRS believes that the country will maintain its efforts to reduce public debt, but now at a slower pace, given that economic growth should decelerate by 2% during the next two years, which is connected with the trend of the eurozone.

“We expect debt to GDP ratios to stand at 120-121 %, perhaps 122%, which is what the European Commission already expected for 2018. As for this year, we are expecting a slight drop in percentage points. In 2020, the expectations are that the debt to GDP ratio lowers to 115% of GDP, which is a very healthy drop.

DBRS’ last rating of the Portuguese economy was assigned in October 2018, in which the agency maintained the country’s rating at BBB, with a stable outlook, referring to moderate risks in the country’s evaluation, after having improved to BBB in April that year.

DBRS was the rating agency that allowed Portugal to continue being financed by the European Central Bank during the crisis since the three other most relevant agencies for the ECB had placed Portugal in the “junk” status. Moody’s, Standard & Poor’s and Fitch, had cut Portugal’s credit standing to junk during the starting in 2011, not considering that the Portuguese debt was speculative, that is, below investment grade, and not stable enough to be placed in the capital markets.