Fitch Raises Outlook on Spain

(Reuters) – Credit ratings agency Fitch on Friday raised its outlook on Spain to "positive" from "stable", citing improving structural factors that are likely to bolster the country's GDP growth potential and resilience against external shocks.

"Positive labour market trends boosted by strong net migration and reform, improved competitiveness, and the absence of macro-financial imbalances, underpin Fitch's assessment that Spain will continue outperforming its eurozone peers over our forecast horizon," the agency said, maintaining Spain's rating at "A-".

The country has been a bright spot in the euro zone, supported by a buoyant tourism-driven service sector and resilient manufacturing, while sluggish industrial demand took a toll on the rest of the region.

The Spanish economy grew at a faster-than-expected rate of 0.8% in the third quarter this year from the previous three months, and 3.4% year-on-year, outpacing its European peers.

Fitch on Friday projected Spain's real GDP to grow at 2.9% in 2024, with average growth of 2.2% in 2025 and 2026.

However, challenges remain as Socialist Prime Minister Pedro Sanchez relies on a fragile alliance with smaller parties to pass legislation, increasing policy implementation risks.

The Sanchez administration is banking on tax reform to achieve its medium-term fiscal targets but will face expenditure pressures, Fitch said.