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Portugal in Moody’s spring rating cut

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(28 January 2011) The ratings agency Moody’s has admitted that it may downgrade Portugal’s creditworthiness in March. The financial agency had already warned in December that it was looking at Portugal’s position closely and considering cutting its rating by one or two points. Anthony Thomas, the Vice President of Moody’s and an expert on Portugal, said that the agency’s next evaluation in March would take into account the sustainability of Portugal’s export figures.

“We have identified growth forecasts and exports as two of the key factors in our eventual decision,” he told the financial news channel Bloomberg.

“We have noticed, in the last few quarters, that the Portuguese export market has performed well, but would question if this is sustainable,” he said.

In an interview with Lusa, Anthony Thomas added that the decision to maintain or cut Portugal’s rating would not be wholly dependent on the development of the Portuguese economy this year, nor would it depend solely on the results of forthcoming sovereign bond auctions. A ratings agency generally examines a whole set of economic indicators including internal and external trade figures, investor confidence, the health of banks and the private sector, government borrowing and deficits, interest rates, productivity and competitiveness. The Portugal analyst told Reuters that it would be “best if Portugal managed to secure relatively low interests rates for servicing its debts” but when asked if he thought Portugal should seek help from the International Monetary Fund, he replied that it was “not something we should speculate about.” Instead he said that it was important to know if the current interest rates paid out on government bonds was sustainable or not and that Moody’s would partly base its decision on that. But the German weekly current affairs magazine Der Spiegel reported that Portugal’s situation is serious with considerable structural problems and an economy that has barely grown by 1.3%. “Portugal’s most important goal is to regain the trust of international investors” said Rolf Langhammer, the Vice President of the German Kiel World Economy Institute. “Ultimately it is the investors who determine the conditions under which governments obtain fresh money. Should interest rates rise too high, it would only be a matter of time before Portugal could no longer afford new debt.”

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