Fitch is expected to maintain Portugal's rating but may rise to positive – The Economic Journal


Fitch will look at the Portuguese sovereign debt rating on Friday as analysts anticipate the possibility of an improved outlook after the US agency has kept Portugal's rating unchanged in November.

"I hope that the perspective is changed to positive and the rating should remain at 'BBB', in line with that of S & P, "says economist and president of IMF – Financial Markets Information, Filipe Garcia. The view is shared by ActivTrades analyst Mário Martins, noting that the upgrade may reflect "the current stability of the Portuguese economy," even though it recognizes that "the debt burden relative to GDP remains very high."

Filipe Silva, director of asset management at Banco Carregosa, is more optimistic and indicates that "it may be possible to see a rise in the rating from Portugal".

"Portugal has been able to consecutively rollover of its debt with lower or negative rates depending on the term of the same, the economic data have not disappointed and we continue with political stability, "he adds.

Fitch maintained its rating of Portugal unchanged last December in a stable 'BBB', justifying that economic and budgetary developments since the last assessment in May, supported the view that public debt is on a 'firm' downward trend, .

Fitch's assessment is in line with that of S & P, which in March raised the Portuguese debt rating to the second degree of investment and stable outlook. The last agency to comment on Portuguese sovereign debt was DBRS in April, which maintained the rating in 'BBB', but raised the outlook from 'stable' to 'positive'. Only Moody's evaluates Portuguese sovereign debt at Baa3, with a stable outlook, ie the first investment grade.

Legislative elections with little impact

The analysts consulted by the Economic Journal point out that Portugal has renewed minimum interest rates on debt issuance and that the performance have kept investors excited, however, anticipate that it should not be enough for the US upgrade of rating.

"The recent trajectory of the deficit and long-term interest rates could even justify the improvement of the rating, but the fact that the outlook is 'stable', the very high debt / GDP ratio, the approximation of the electoral cycle and the economic slowdown should lead the agency to only improve the outlook, "explains Filipe Garcia.

Mário Martins considers, however, that the legislative elections scheduled for October "should have no effect on the credit risk decision". According to ActivTrades analyst, Portugal benefits from the lack of probability of a populist party achieving a relevant result, noting that "all forecasts point to status quo in government "and that" the political stability of Portugal is one of our main differentiators and should continue, "he said.

"Any revision will have a limited effect on yield short-term. The world situation remains stable, the trade war between the US and China has recently worsened and Chinese producers will have to find new markets to dispose of their products, with the European market being the most attractive. This will keep inflation under control, which will have a greater effect on yields than any revision of the country's degree of risk, "says Mário Martins.



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