Spain earns across-the-board rating upgrades on strong economy

Spain got credit rating upgrades from all three major rating agencies last week, as Fitch and Moody’s joined S&P in acknowledging how well the country’s economy is doing compared to the rest of Europe.

On Friday, Fitch raised Spain’s long-term rating from “A-” to “A” because of good growth prospects ahead. The agency said better productivity, wages that haven’t grown too fast, and lower energy prices have made Spain more competitive globally and strengthened private sector balance sheets.

Fitch said Spain’s economy will likely stay strong, helped by limited exposure to U.S. tariffs and ongoing reduction of external debt.

Moody’s also bumped up Spain’s rating by one notch last week, going from “Baa1” to “A3.” The decision shows that Madrid’s economic strength is getting better thanks to a more balanced way of growing, improvements in the job market, and a stronger banking sector.

Spain’s economy has been doing really well lately, getting a lift from foreign investment, tourism, and immigration.

Spanish officials see migration differently than many of their counterparts in Europe and the U.S. They champion it as a way to make society better, fix a falling birthrate, and keep the economy moving forward. In other places, opposition to new immigration has become part of regular politics, creating support for populist parties. Most Spanish people have been fine with this so far, but there are risks for Socialist Prime Minister Pedro Sánchez.

Vox, a relatively new far-right party that isn’t as strong as similar parties in Italy, Germany, and France, has grabbed onto immigration as an issue. The public pollster CIS says it’s become a major worry among voters.

Ambitious regularization program targets 1 million new residents

This isn’t the first time Spain has worked to regularize undocumented workers as there have been six other times between 1986 and 2002 that helped 1.2 million people. But this is part of the most ambitious effort so far.

Through this program and another one aimed mostly at Latin Americans, Spain is set to add close to 1 million new residents over the next three years. A system for seasonal worker visas is also being expanded.

Spain used to be a country where people left to find work elsewhere. It only became a place where immigrants came in the early 2000s as the economy grew, with foreigners taking jobs that Spaniards couldn’t do or didn’t want. Numbers from the OECD show Spain has had one of the fastest demographic shifts in developed countries this century, with foreign-born people going from 1.6% to 14% of the population in less than 30 years.

Growth projections exceed euro area expectations

The government said earlier this month that it thinks GDP will grow by 2.7% this year, higher than the previous guess of 2.6%, and way above the 1.2% growth expected for the broader euro area.

Earlier this month, S&P Global gave Spain a rating upgrade too, pointing to “notable improvement” in how the country’s balance sheet looks and better resilience to economic shocks.

Judith Arnal works as a senior fellow at the Elcano Royal Institute, a think tank in Madrid. She said Spain has come out as the clear growth leader among the euro area’s largest economies in recent years.

“Spain’s growth has relied not only on booming tourism but also on dynamic non-tourism services, such as business, telecoms and IT services. This marks a shift in the country’s growth pattern, showing that Spain has competitive firms able to export beyond traditional sectors,” Arnal told CNBC by email.

“Growth has also been closely linked to demographic dynamics and job creation. More than half of the jobs created since 2020 have been taken up by immigrants, which has supported overall GDP expansion but meant that GDP per capita has advanced less strongly. This reflects a more extensive than intensive growth model,” she added.

Looking forward, Arnal said that even though political uncertainty hasn’t kept Spain from leading euro area growth, the country could do even better with more stability.

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