Key Takeaways
- Morningstar DBRS confirmed Spain’s Long-Term Issuer Rating at A (high) with a Stable trend, citing the country's resilient economic performance and improving fiscal metrics.
- Spain is projected to remain among the fastest-growing Eurozone economies in 2026, consistently outperforming the regional average through diversified service exports and strong domestic demand.
- The national budget deficit is expected to narrow to 2.1% of GDP in 2026, down from previous years, as the government continues its path toward fiscal consolidation.
- Public debt remains high at approximately 100% of GDP, though the agency noted a favorable downward trajectory supported by nominal GDP growth and primary surpluses.
Rating Confirmation and Economic Outlook
Morningstar DBRS announced on Friday that it has maintained the Kingdom of Spain’s credit rating at A (high). The agency kept the trend Stable, reflecting a balanced view of medium-term risks and the country's ability to absorb external shocks.
The rating is underpinned by Spain’s large and diversified economy and its membership in the Eurozone. Analysts noted that the country has successfully navigated global trade tensions by diversifying its service sector exports beyond traditional tourism.
Labor Market and Domestic Demand
Spain’s labor market has shown significant structural improvement, with the unemployment rate falling to 10.5%—its lowest level since 2008. Steady employment growth, averaging roughly 2% annually, has been bolstered by net migration and rising labor productivity.
Domestic demand remains a primary growth driver, supported by the recovery of purchasing power and the deployment of European Union recovery funds. The NextGenerationEU (NGEU) plan is expected to mobilize up to €163 billion in grants and loans by the end of 2026.
Fiscal Consolidation and Debt Management
The Spanish government is making progress on reducing its headline deficit, with targets set at 2.1% for 2026 and 1.6% by 2028. These improvements are critical for maintaining investor confidence in Spanish sovereign bonds.
Despite the positive outlook, the 100% debt-to-GDP ratio continues to limit fiscal flexibility. Morningstar DBRS highlighted that while the debt trajectory is downward, the high level of indebtedness leaves the country vulnerable to potential funding cost increases.
Financial Sector and Market Implications
Major Spanish financial institutions, including Banco Santander (SAN) and BBVA (BBVA), continue to benefit from the stable macroeconomic environment. Improving borrower conditions and an easing cycle from the European Central Bank (ECB) have supported a post-GFC high in mortgage originations.
However, the agency warned that political fragmentation and the inability to pass a permanent state budget since 2023 could pose obstacles to future policy implementation. A meaningful recovery in private investment remains the "missing piece" required to sustain high growth levels in the long term.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.