Moody's raises Spain rating outlook to stable

Washington (AFP) - Moody's raised its rating outlook for Spain to "stable" from "negative" Wednesday, citing signs of real improvement in the economy and government finances.

Moody's left the overall rating for Spanish debt unchanged at Baa3 -- just above junk-bond level -- but the change in the outlook reduced the likelihood of another downgrade as the country works to rebound from its financial crisis.

Evidence that the economy is adjusting to new market conditions, including a push in exports, and improved growth prospects for the medium term "supports Moody's view that Spain's public finances are on a slowly improving trend," the rating agency said.

"The external accounts continue to improve, the situation in the labor market has stabilized and the private non-financial sector continues to deleverage."

"The external accounts continue to perform better than expected, with Spain among the few EU countries to see its export market share increase over the recent past.

"Moody's expects the strong export performance to continue, as competitiveness is supported by very low wage and price increases."

Moody's said that the labor market has begun to stabilize after unemployment reached 26 percent, and that the government's external debt has begun to fall.

In addition, companies continue to pare their debts, pointing to a stronger private sector as financing conditions loosen.

Another key change is the government's increasing access to private capital markets, at falling interest rates, Moody's said.

"The improving economic prospects in turn provide a greater level of confidence that Spain's still elevated budget deficit can be gradually reduced."