Portugal’s Outlook Raised to Positive by S&P on Falling Debt

(Bloomberg) -- Portugal’s government bond rating outlook was raised by S&P Global Ratings as the country’s economy is set to post steady growth and its debt ratios decline.

Most Read from Bloomberg

The outlook was revised to positive from stable, S&P said in a statement on Friday. It affirmed the BBB+ rating. S&P in Sept. 2022 raised the rating one level to BBB+, with a stable outlook.

“Portugal’s budgetary and external position will gradually improve, as a percentage of GDP and export receipts, supported by tourism and investments under large EU funds,” S&P said. “Pragmatic and prudent policymaking will, in our view, underpin a steep decline in government debt.”

Gross domestic product growth is expected to slow this year, after bouncing back following the pandemic. Portugal had the third-highest debt ratio in the euro area in 2022 and the European Commission projected in May that it will be ranked fifth in 2023, as its debt ratio drops below the levels of Spain and France.

S&P said the government’s fiscal policy has the country on track to reduce net debt to 87% of GDP by the end of 2026 from 99% in 2023, “one of the steepest declines in Europe.”

Government debt fell to 113.9% of gross domestic product in 2022 and the government aims for a budget deficit of 0.4% of GDP in 2023, unchanged from 2022.

The ratings company said Portugal is set to post average GDP growth of 2% from 2024 to 2026. The Bank of Portugal in June raised its 2023 economic growth forecast to 2.7%, citing the performance of the tourism industry.

Portugal’s 10-year bond yield was at 3.34% on Friday, compared to about 3.51% six months ago. It peaked at 18% in 2012 at the height of the euro region’s debt crisis.

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.