In the report, S&P justifies the decision to upgrade Portugal's rating to 'BBB+' with the fact that, despite higher energy costs and rising interest rates, the country continued "to record strong growth, labour market and budgetary results, with investment increasing due to the 61.2 billion euros (26% of Gross Domestic Product) foreseen in European Union funding between 2022 and 2027”.
The agency notes that the stable outlook reflects the view that Portugal's growth prospects are resilient, despite the risks arising from the consequences of the Russia-Ukraine conflict, and that state debt will continue on a strong downward trajectory.
Among the macroeconomic highlights, S&P believes that the budget deficit will settle below the target of 1.9% of GDP this year, due to strong tax revenue, driven by higher growth and inflation, and the "caution" of the Government in spending, and break even in 2025.
While admitting that the effects of inflation, energy prices and projected lower European growth will be felt for the rest of this year and into 2023 and growth will slow down, the report states that the shock will be “relatively short-lived” and that “strong investment financed” by European funds to sustain growth over the medium term.
From a perspective that says it is conservative, it estimates GDP growth of 4.8% this year, followed by an expansion of 2.2% in 2023.
The next agency to look at Portuguese debt is Fitch on 28 October.
Standard and Poor's raises Portugal's rating
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