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Moody's upgrades Portugal, changes outlook to stable

Moody's upgraded Portugal's ratings and revised its outlook to stable from positive, citing the sustainable downward trend in the country's general government debt and increased economic resilience.

Among the ratings upgraded by the rating agency are Portugal's domestic and foreign long-term issuer, domestic and foreign senior unsecured and domestic senior unsecured MTN program ratings to Baa3/(P)Baa3 from Ba1/(P)Ba1, and the foreign commercial paper and domestic other short-term ratings to P-3/(P)P-3 from NP/(P)NP.

Portugal's general government debt-to-GDP ratio declined 4.5 percentage points to 124.7% in 2017. The debt watcher expects the debt burden to decline further to 116% of GDP by 2021.

Moody's added that the expected improvement in the capacity of the government's balance sheet to absorb shocks over the coming years is consistent with an investment-grade rating for the country.

Portugal's sustained investment spending and improving external position have increased the resilience of its economy, according to Moody's. The country's real GDP growth reached 2.8% in 2017, the highest in 17 years.

"[I]nvestment has made a sustained contribution since mid-2016, with evidence that the recovery extends beyond construction to include spending on machinery and equipment," Moody's said. "Furthermore, the job-rich recovery, benefiting in part from previous reforms to improve flexibility in the labor market, will help ensure a consistent contribution from consumption in the coming years."

Moody's said the outlook revision reflects a balance of risks at Portugal's Baa3 rating. "While a continuation of the [favorable] external conditions could support growth in excess of Moody's forecasts, the eventual moderation in growth prospects reflects ongoing structural constraints in the economy," the rating agency added.

DBRS, in its separate ratings action, affirmed Portugal's long-term foreign and local currency issuer ratings at BBB and short-term foreign and local currency issuer ratings at R-2 (high), with a stable outlook.