* Moody's raises Spain rating to Baa2
* Agency highlights structural reforms, rebalanced economy
* Sees growth sustainable, not growth boom
By Paul Day
MADRID, Feb 21 Moody's Investors Service raised
Spain's sovereign debt rating and outlook on Friday, citing
progress in economic rebalancing, structural reforms and
improved market access after around five years of a deep
The ratings agency increased the sovereign one notch to Baa2
with a positive outlook.
The move comes as Spain emerges from one of its deepest
recessions in decades, struggles with record high unemployment -
with one of four of the workforce out of a job - and fights to
narrow one of the euro zone's widest public sector deficits.
Moody's last revised Spain's outlook from negative to stable
in December after cutting its rating to one notch above junk in
The country lost its top credit rating at Standard & Poor's
in January 2009, followed by Fitch Ratings and Moody's in 2010.
"We wanted to acknowledge the progress Spain is making in
turning the economy around, rebalancing away from real estate
residential investment credit boom toward a more
export-orientated model," said Kathrin Muehlbronner, a senior
credit officer with Moody's.
Spain has been at, or close to, recession since a
decade-long property bubble burst in 2008, sending millions to
the unemployment lines and gutting once-strong domestic demand,
a key pillar for the country's economy.
With household and business spending badly damaged, many
companies turned beyond Spanish shores, making exports one of
the only growth areas in the last few years.
"Not a recovery that is very, very strong, but we feel more
confident that there is a sustainable recovery here,"
The agency praised Spain's progress on structural reforms,
notably labour market reform that has helped make hiring and
firing more flexible and a restructuring of the banking sector,
hard hit by the property crash.
However, the ratings agency warned that the outlook and
rating would face downward pressure if economic improvement or
fiscal consolidation stalled.
Spain has one of the highest budget deficits in the euro
zone, but has managed to almost halve the size of the gap in the
last few years through stringent austerity measures including
tax hikes and spending cuts.
Moody's also said the country's creditworthiness was
constrained by a high debt-to-GDP ratio, expected to top 100
percent this year, a relatively weak banking system and high
"The outlook, and eventually the rating, could come under
pressure if the economic improvement or fiscal consolidation
stalled," the agency said in a note.
"While significantly less likely than a year ago,
significant further bank recapitalisation needs or renewed and
sustained concerns over market access would also be negative for
Appetite for Spanish debt by investors has been growing
since hitting a low in summer 2012, the height of the euro zone
debt crisis. Bond yields fell back toward eight-year lows on
The yield of benchmark 10-year bonds on Thursday dropped to
the lowest level at a primary auction since 2006, while yields
on a 30-year bond on offer also dropped to a near six-year low.
Spain is currently rated one notch above junk at Standard &
Poor's, at BBB-minus, with a stable outlook, while Fitch has
Spain at two notches above junk, at BBB, with a stable outlook.
The Spanish government declined to comment on the rating