Despite very different credit metrics, Spain, Italy and Ireland currently carry ratings in the same Baa rating category as several large emerging market peers such as Brazil, Indonesia, South Africa and Turkey, says Moody’s Investors Service in a new report published today. High institutional strength and elevated levels of wealth, which have acted as a shock absorber in the crisis, constitute key relative strengths of the three euro area sovereigns compared to the emerging market peers. At the same time, the emerging markets have much lower public debt and stronger public finance metrics.
The new credit focus report, entitled “Spain, Italy & Ireland: A Peer Comparison With Emerging-Market Baa-Rated Sovereigns”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release.
“In general, countries with high institutional strength can see relatively faster rating improvements as and when they address their imbalances, while improving the quality of institutions and materially raising wealth levels takes much longer. This benefits the euro area sovereigns,” says Kathrin Muehlbronner, a Moody’s Vice President – Senior Credit Officer.
Moody’s also notes that none of the emerging market economies analysed in this report have vulnerabilities of a similar magnitude to those that were at the root of the crises in Spain and Ireland, namely an over-leveraged private sector funded by capital inflows from abroad.
The banking sectors in the emerging economies are generally well capitalized and much smaller in scale. The external debt of their corporate sectors has risen substantially, but it remains far more moderate than in Spain and Ireland. At the same time, external vulnerabilities are increasing in several emerging markets while declining in Spain and Ireland. In a similar vein, the euro area countries are slowly emerging from their deep recession, while the emerging markets are generally faced with slowing growth, in particular Brazil and South Africa.