01-04-2015

The Moody’s credit rating service is forecasting economic growth of 2.6% for the Balearics in 2016, just under a predicted national growth of 2.7%.

This national average forecast takes account of uneven levels of growth region by region, a lower one being the 2.3% for Catalonia. The Moody’s analysis of Catalonia is that uncertainties are being caused there both in respect of the independence issue and fiscal consolidation. It notes that political tensions with the national government will continue through 2016 and so take the focus off the need for this consolidation. The agency does, though, anticipate negotiations between Catalonia and the national government following the general election in just over a week’s time.

Catalonia’s growth forecast is not the lowest, as the Basque Country and Cantabria, according to Moody’s, can each expect growth of 2.2%. The highest levels of growth are forecast for La Rioja and the Madrid community with, respectively, increases of 3% and 2.9%. Also above the Balearic growth figure are the Canary Islands, with a forecast of 2.8%.

Moody’s is stressing the importance that national government will play in ensuring that the state is a guarantor of regions’ liquidity: the total needs of the regions will equate to 23,000 million euros in 2016. In this respect, the agency expects that these liquidity requirements will be mostly met from the Fund for Autonomous Liquidity, which will benefit all regions bar the Basque Country, which has not made a request.

Moody’s also notes the positive support that national government has given to the regions in lowering their interest payment burdens so long as deficit targets are met. The government has also helped in improving investor perceptions, significantly reducing interest demanded of the financially weaker regions. The agency foresees an increase in overall tax revenues in 2016, which will add to a positive outlook for Spain.

Its analyst for the Spanish regions, Marisol Blázquez, believes that economic growth in Spain will help reduce regional deficits because of higher tax revenues. Moody’s is not changing any rating or position at present but is confident that the financial support available through the liquidity fund will contribute to this positive outlook and to a “cheap” source of regional funding.

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