Fitch Keep Portugal Outlook "Stable", Eyeing Political Uncertainty

Friday's rating reviews saw Fitch affirm Portugal at A- (Outlook Stable), while Scope revised Spain's Outlook to Positive From Neutral, maintaining its rating at A-.

• Spanish and Portuguese spreads to Bunds are generally a touch tighter this morning across tenors.
• While Fitch's rating on Portugal is in line with Moody's and S&P, some may have hoped for an outlook upgrade after S&P's review at the start of March (where the rating was upgraded to A- and the Outlook maintained at Positive).
• Political uncertainty arising from the recent election was cited as a source of uncertainty and downside risk to Fitch's budget surplus forecasts.
• However, Fitch's base case is that the final outcome "will not translate into material fiscal easing", pointing to favourable debt dynamics, ongoing external balance sheet improvements and a robust economy/private and banking sectors as positives to the rating outlook.
• Elsewhere, Scope revised Spain's Outlook to Positive from Neutral, citing "enhanced economic resilience despite challenging global economic conditions" and "strengthening fiscal fundamentals…supported by sustained revenue growth from increased social security contributions and moderated expenditures".
• There remains some divergence on rating views in Spain, with each of the big-three agencies assigning a different rating.
• Moody's recently affirmed Spain's rating at Baa1 (though with an upgraded outlook) and S&P recently affirmed Spain's rating at A. Fitch provides the next update on Spain on 17 May (current rating A-, Outlook Stable).