A glowing report

The report cards are in, and it seems that Spain's been a very good student. All three of the major credit rating agencies - Standard and Poor's (S&P), Moody's and Fitch - have upped their scores for Spain recently, citing GDP expansion, labour market reforms and a strengthened banking sector.

Fitch and Moody's were the latest to tweak their ratings last week, from 'A-' to 'A' and 'Baa1' to 'A3', respectively. Fitch's economic forecast for Madrid remains 'Stable', but Moody's also improved that to 'Positive'.

These three companies' credit ratings are intended to provide investors with a way of identifying the riskiness of various debt and asset classes, from government bonds to mortgage-backed securities.

The last time one of them improved Spain's score was in January 2018, when Fitch changed its 'BBB+' to an 'A-'. It was the first time the country had been placed in the top band since 2012, and reflected the limited economic fallout from Catalonia's illegal push for independence the previous autumn. Almost eight years later, and Spain is an A-grade boffin, the economic swat of Europe.

The rating agencies' improved scores can be added to a list of accolades and statistics that grows by the month: the world's best economy in 2024, according to The Economist; annual GDP expansion at almost three times the Eurozone average; and a 250-billion-euro tourism industry that accounted for 16% of the Spanish economy last year.

If you take these ratings seriously, they indicate that Spain is a safe bet for investors, despite having a corruption-riddled government that hasn't been able to pass a budget since 2022. But that's a very big 'if'.

The rating agencies' reputations still haven't fully recovered from the global financial crisis of 2007-08, which they helped trigger by giving stellar ratings to toxic subprime mortgages and insolvent financial institutions.

In 2015, S&P agreed to pay 1.4 billion dollars, in a deal with the US Justice Department over allegations that it had knowingly given favourable scores to high-risk mortgage securities. Fitch followed suit in 2017, paying out 864 million dollars in a settlement with US federal and state authorities over the same charges.

To return to the student-teacher analogy: imagine that you're back at school, and have just been awarded an 'A' for an essay that you laboured over for hours. You're thrilled - until you're told that the laziest kid in class was given the same mark, for an inferior piece of work generated by AI. Your essay, like the Spanish economy, might be of genuine merit, but not because your indiscriminate teacher says so. Of all the indicators of robust economic health, top scores from the credit rating agencies mean the least.