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ECONOMY

Spain’s debt rating gets another upgrade

Canadian credit rating agency DBRS said on Friday it has lifted Spain's rating to "A" from "A (low)" citing the country's "strong economic recovery and progress reducing the fiscal deficit in recent years".

Published: 7 April 2018 03:25 CEST
Spain's debt rating gets another upgrade
Spain's Economy Minister Roman Escolano. Photo: Juan Mabromata/AFP
“DBRS considers structural improvements in the Spanish economy have strengthened the prospects for sustainable growth,” it said in a statement. “Against this background, DBRS anticipates that higher revenues and expenditure control will allow the Spanish government to continue to reduce its fiscal deficit in coming years.”
 
Another ratings agency, Fitch, had upgraded Madrid's sovereign debt rating in January while S&P Global followed suit last month.
 
DBRS said it believed Spain's “strong economic and fiscal performance” would continue “largely unaffected” by political tensions in Catalonia over the wealthy northeastern region's independence drive.
 
“The economic impact has been confined to the regional economy, and largely offset by stronger external demand,” it said.
 
Catalonia, which was previously an autonomous region, remains under direct rule from Madrid, which was imposed after the region declared independence in October.
 
Spain's central bank last month increased its growth forecast for 2018 to 2.7 percent from 2.4 percent as the government plans to reduce income tax for some workers and hike wages for civil servants. It said this reduction in the tax burden would however lead to a slower drop in the public deficit this year, which it predicts will reach 2.5 percent of GDP — still below the 3.0 percent limit set by the European Union.
 
Spain posted a public deficit of 3.07 percent in 2017, just below its target of 3.1 percent agreed with Brussels.
 
Economy Minister Roman Escolano welcomed DBRS' announcement, saying it “reinforces international recognition of the robust recovery of the Spanish economy”.
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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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