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Fitch: Catalonia Vote adds to Spanish Political Challenges
October 2, 2017 / 5:29 PM / 16 days ago

Fitch: Catalonia Vote adds to Spanish Political Challenges

(The following statement was released by the rating agency) LONDON, October 02 (Fitch) The confrontational nature of the vote on Catalonia independence has increased near-term political risks and will make a negotiated solution more complicated, but so far remains consistent with Fitch Ratings' current sovereign rating assessment on Spain. We expected at the time of our latest sovereign rating review in July that the planned vote would be declared unconstitutional by the Spanish courts and that tensions between the central and Catalonian regional governments would ratchet up. Spain's 'BBB+' rating, with a Positive Outlook, incorporates a qualitative, one-notch downward adjustment to that implied by our Sovereign Rating Model to account for "downside risks of a disorderly resolution of the Catalan government's call for independence". The immediate consequences of Sunday's vote are hard to predict, including whether there will be a unilateral declaration of independence, the nature of any subsequent suspension of the regional government's power by the central government, how the Catalonia government and public would respond, and the timing and process around potential new regional elections. There remains a risk of fresh disturbances. The recent events could also weaken the ability of Spain's minority Popular Party government to implement national policy, for example in securing the support of smaller parties such as the Basque National Party for the 2018 budget, passage of which was delayed last week. We view Catalonia's secession from Spain as very unlikely, and our central assumption remains that there will ultimately be a settlement on regional financial reform and greater autonomy for Catalonia within Spain but that this will be a drawn-out process. The prospects of near-term progress towards this have been weakened by the recent developments. The Positive Outlook reflects a number of improvements in Spain's sovereign credit profile since its upgrade to 'BBB+' in 2014, including the strong and relatively broad economic recovery, expectation of faster fiscal deficit reduction in 2017, and ongoing external adjustment. The rating is constrained by very high public and external debt, high unemployment, and political risk. We forecast above-trend GDP growth of 3.1% in 2017 and 2.5% in 2018, but a further sustained escalation in tensions between the Catalonia and Spanish governments would represent a downside risk, including from greater social unrest, disruption of regional government functions, and weaker investor confidence. One of the key assumptions underlying our sovereign rating assessment is that there is broad political stability, and Catalonia remains part of Spain. We also assume that the outcome and aftermath of Sunday's vote does not lead to disorderly political outcomes that significantly disrupt economic activity. A further escalation of tensions that undermine these assumptions could prompt negative rating action. <a href="https://www.fitchratings.com/site/re/309528">Spain Contact: Douglas Winslow Director, Sovereigns +44 20 3530 1721 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Michele Napolitano Senior Director, Sovereigns +44 203 530 1882 Ed Parker Managing Director, Sovereigns +44 203 530 1176 Mark Brown Senior Analyst, Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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