Moody’s warns Portugal’s debt stumbling block to rate rise

The US rating agency Moody’s has warned this week that despite positive economic growth indicators, Portugal’s accumulated public-private debt of over €250Bn is preventing the agency from raising its rating.

Moody’s also stated that Italy and Spain were in the same boat. The alert was published on Tuesday in a report into the sovereign debts of the three Euro Zone nations.

The Outlook report said that while Portugal’s outlook was stable and based on modest economic growth, Portugal’s government debt, equivalent to 125.70% of the country’s Gross Domestic Product in 2017, remained a stumbling block to a rating rise.

Government Debt to GDP in Portugal averaged 77.85% from 1990 to 2017, reaching an all-time high of 130.60% in 2014 and a record low of 50.30% in 2000.

“Whilst economic growth in the Euro Zone will slow in 2019 to 1.9%, it will remain sufficiently robust to finance borrowing” says Steffan Dyck, Vice-President of Moody’s.

Since the financial crisis the Portuguese economy has become more resilient with the economy recovering its pre-crisis peak in real terms in the second quarter of 2018.

Regarding the region’s sovereign debt, Moody’s says the “burden will gradually diminish” but warned that 84% of GDP is still at a very high level than registered before the financial crisis.

Moody’s specific attention focuses on the peripheral southern European countries including Portugal, considering its level of public debt as a limitation to positive changes in its current rate.

Portugal’s current rating from Moody’s is “Baa3,” the first positive level beyond “Junk” status. In the context of a more challenging global growth environment in the coming years, Moody’s forecasts real economic growth to 2020 averaging 1.8% in Portugal.