S&P cuts outlook on Spain’s debt from stable to negative
RATINGS agency S&P Global has cut the outlook on Spain’s debt to negative from stable and warned that the pandemic-hit economy will struggle to return to growth.
Spain’s sovereign debt grade was affirmed at “A” but S&P said the caution on the outlook was driven by concerns the government will not pass a budget for the third straight year “and economic weakness could persist into 2021 and 2022.”
“The pandemic has stopped growth in its tracks.
We now estimate that for 2020, the economy will contract by 11.3 percent,” the ratings agency said in a statement.
“We believe that the resulting economic pressures on Spain may have increased prospects of a political agreement this autumn for a 2021 budget, while building consensus behind the progrowth reforms detailed in Spain’s National Reform Program.”
The agency credited the stimulus measures with preventing an even deeper recession in the Spanish economy, but noted lingering risks, including the high government debt level.
However, Moody’s was more upbeat on Friday, maintaining the debt outlook at stable in addition to holding the credit rating steady at Baa1.
The agency noted that “government support measures combined with past progress in restoring competitiveness and reducing macro imbalances should provide for a robust economic recovery next year.”
The low interest rate environment will also soften the impact of the elevated government debt, Moody’s said.
GERMANY would relax insolvency rules under proposals set out on Saturday to help avert a wave of bankruptcies in Europe’s biggest economy, provided companies hit by the coronavirus crisis have a robust business model.
Keen to avoid bankruptcies and mass layoffs, Chancellor Angela Merkel’s government has launched a range of stimulus and relief measures as Germany braces for its biggest slump since World War Two, having shrunk by an unprecedented 9.7% in the second quarter.
“Companies that can show creditors a realistic prospect of restructuring should be able to implement their concept outside insolvency proceedings,” said Justice Minister Christine Lambrecht in a statement.
Under the draft reform, which would take effect at the start of 2021, the deadline for firms to file for insolvency would be extended to six from three weeks and authorities will apply more relaxed benchmarks when examining over-indebtedness.
The government has already taken steps such as allowing firms in financial trouble due to the pandemic to delay filing for bankruptcy until the end of the year, extending an original deadline of the end of September.
Helped by these measures, the number of firms declaring insolvency in Germany fell 6.2% to 9,006 in the first half of this year from the same period last year. Critics say suspending insolvencies delays, but does not prevent, the collapse of “zombie companies” artificially kept afloat.