The 30 developed European sovereigns we rate represent the world's highest concentration of wealthy states. But while Europe looks set to avoid a technical recession in 2023 and 2024, thanks to its resilient services sector, trend growth is the lowest of all developed regions. Productivity trends are moribund, and manufacturing-based economies risk losing competitiveness in key sectors, not least due to high energy costs and withering demographics.

In most European capitals there is a recognition that the European Union--and the euro area--remain unfinished projects.  Barriers to free movement of labor, goods, and services persist, and the banking union is a work in progress. This is despite the mid-2020 breakthrough that saw the EU raise debt to finance the €807 billion NextGenerationEU program--a supranational fiscal stabilizing mechanism. Notably, several small EU members have shown--via solid growth and prudent fiscal policies--that euro area economies can deliver solid growth and sustain high public consumption and investment while reducing debt to GDP.

A key area to watch is whether larger member states take more actions to underpin fiscal consolidation.  Positively, a soft landing for the European economy remains likely over the near term, with real incomes set to rise amid disinflation and resilient labor markets. But that still translates into eurozone GDP growth of just 0.6% in 2023 and 0.8% in 2024 versus 2.4% and 1.5% in the U.S., respectively. Lower inflation also means lower nominal GDP growth. Indeed, for the first time in nearly a decade, we forecast nominal GDP growth to fall below the cost of 10-year debt for both Italy and the U.K. (although these two issuers will also benefit from a reduced cost of CPI-indexed debt). Moreover, for 2023, we estimate that general government spending in Italy, Spain, and the U.K. still exceeds pre-pandemic levels by an average of 4 percentage points of GDP. Underlying fiscal positions are projected to remain in deficit out to 2025 in several highly indebted European governments including Belgium, France, Spain, and the U.K. While this is also the case in developed sovereigns elsewhere (for example Japan and the U.S.), these benefit from structural advantages that European sovereigns lack (Japan has its high savings rate; the U.S. has premier reserve currency status). In many respects this brings us back to the remaining challenges in the euro area's financial architecture, not least the absence of a single pan-European risk-free asset that can compete with U.S. Treasuries. But chronic fiscal imbalances are also a function of weak growth outcomes, reflecting constrained political appetite for frontloaded labor, service-sector, and product-market reforms.

We upgraded Iceland, Ireland, and Greece in 2023, the latter to investment grade for the first time since 2010.  As was the case in 2022, the smaller faster-growing economies--with larger services sectors (especially tourism) and a stricter line on energy subsidies--have made greater inroads into putting debt to GDP on a steep downward path.

Mirroring these strengthening fundamentals, we also revised our ratings outlook for Cyprus and Portugal to positive (as well as Andorra).  These small euro area members are set to operate underlying fiscal surpluses (primary positions) of between 1.1% of GDP (Greece) to over 3.0% ( Cyprus and Portugal). Some of this success reflects the hard work they put into fiscal sustainability in the past: between May 2010 and December 2011 Greece, Ireland, Portugal, and Cyprus had all entered economic adjustment programs administered by the Eurogroup and the European Stability Mechanism. Those programs, as well as the strength of tourism in most of these sovereigns, have paid off.

We have only one large European sovereign, France, on a negative outlook.  We foresee France making only limited progress on lowering its gross debt to GDP over the next three years, with underlying fiscal deficits (the general government position excluding interest payments) remaining in deficit into 2026. We note that France has posted some better macroeconomic outcomes than peers, such as lower headline inflation (partly reflecting its larger nonhydrocarbon energy capacity, as well as reductions in energy specific taxes); rising labor participation; and the passage of comprehensive pension reform. But government spending, at 57% of GDP, is 10 percentage points above the G7 average, which brings the sustainability of its overall fiscal framework into question.

Ratings on the three Baltic states--- Estonia, Latvia, and Lithuania—remain on negative outlook due to fiscal and economic pressures stemming from the war between Russia and Ukraine.

Reforms to EU fiscal rules for 2024 have yet to be agreed, although some Eurogroup members believe a deal can be struck by year end.  Some of the parameters seem clear. The reference values (under the Treaty on Stability, Coordination, and Governance in the Economic and Monetary Union) remain: 3% of GDP for public deficit and 60% of GDP for public debt. The majority of members do not comply with these targets, and, of these, the European Commission (EC) will require fiscal plans that stipulate a minimum fiscal adjustment of 0.5% of GDP per year. To make these judgements the EC might exclude "temporarily excess interest premiums" for some member states. In our view, if agreed, this could reinforce complacency on debt sustainability. Over the medium term, debt sustainability will hinge more on real growth outcomes. Here, the outlook remains clouded by still-high energy costs, fragmented services markets, red tape, and the disappointing labor productivity outcomes in Europe's largest economies since the pandemic.

Several European elections are scheduled for 2024, and might be interpreted as votes of confidence or no confidence in EU institutions.  Upcoming polls include Finland's presidential elections (January), Portugal's parliamentary elections (March), Slovakia's presidential elections (April), Lithuania's presidential elections (May), Iceland's presidential and Belgium's parliamentary elections (both June), EU parliamentary elections (June 6-9), Austria's general elections (September), and Lithuania's presidential and the U.K.'s general elections (likely in fourth-quarter 2024).

Table 1

Table 2

Andorra (BBB+/Positive /A-2)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: (Full Analysis) Andorra, Nov. 13, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 2
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 5

Outlook: Positive

The positive outlook reflects our view that Andorra will continue to reduce its net general government debt-to-GDP ratio, implement structural reforms to reduce financial stability risks thanks to enhanced liquidity management, work toward an association agreement with the EU, and improve transparency, particularly on statistical coverage of its external position.

Downside scenario

We could revise the outlook to stable if there are heightened financial sector risks, or if reforms to enhance the regulatory framework are delayed or reversed. Also, a deterioration of the government's budgetary and debt position, for example, due to adverse economic dynamics, would constrain Andorra's creditworthiness.

Upside scenario

We could raise the ratings within the next 24 months upon further evidence that financial stability risks have lessened, for example, via additional reforms relating to banking regulation and supervision amid talks with the EU on the association agreement, or enhanced liquidity management. We may also raise the ratings if additional external data boost our confidence as to the strength of Andorra's external position.

(Latest research update published on May 12, 2023)

Table 3

Austria (AA+/Stable /A-1+)

• Analyst: michelle.keferstein@spglobal.com
• Latest publication: Austria 'AA+/A-1+' Ratings Affirmed ; Outlook Stable, Aug. 25, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our view that Austria will remain resilient to the adverse economic consequences of the war in Ukraine and monetary tightening, thanks to its solid economy and credit metrics. We also expect the country will continue efforts to reduce its dependence on Russia for energy supplies.

Upside scenario

We could raise our ratings on Austria if the current risks to energy supplies significantly decline, while the economy remains robust and budgetary consolidation is kept on track, with further declines in budget deficit and government debt as a share of GDP on a clearly discernible downward trajectory.

Downside scenario

We could lower the ratings if the economic growth outlook materially weakens, for example due to adverse economic effects from the war such as a material disruption of energy supply, or if budgetary and current account outcomes are significantly worse than our current projections.

Table 4

Belgium (AA/Stable/A-1+)

• Analyst: remy.carasse@spglobal.com
• Latest publication: (Full Analysis) Belgium, Sept. 19, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 1
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our view that risks to Belgium's public finances are mitigated by its resilient economy and strong labor market, as well as its strong institutions.

Downside scenario

We could lower the ratings in the next 24 months if Belgium's budget deficit deviates significantly and negatively from our expectations, which could occur because of unaddressed structural budgetary imbalances.

We could also take a negative action if nominal GDP growth proved significantly lower than we project--for example, if the geopolitical situation deteriorated or Belgium's competitiveness were to worsen meaningfully over the next couple of years. Either or both scenarios would lead to a steep increase of net general government debt as a share of GDP.

Upside scenario

We could raise the ratings if Belgium's budget deficit declines faster than we expect--for example, because of a resolute implementation of budgetary consolidation leading to a clearly discernible declining trend in net government debt.

(Latest research update published on March 17, 2023)

Table 5

Cyprus (BBB/Positive/A-2)

• Analyst: samuel.tilleray@spglobal.com
• Latest publication: Cyprus Outlook Revised To Positive On Continued Macroeconomic Normalization; Affirmed At 'BBB/A-2', Sept. 1, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 2
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 4

Outlook: Positive

The positive outlook reflects ongoing macroeconomic normalization in Cyprus since the country's financial crisis in 2012-2013. We consider the prospect that--notwithstanding increasing political pressure to step up expenditure--the government appears on track to sustaining steady fiscal surpluses over the coming years. The positive outlook also reflects the pronounced progress made since the 2012-2013 financial crisis in cleaning up banking sector nonperforming loans (NPLs), despite the still-high stock relative to that of euro area peers.

Upside scenario

We could raise the sovereign rating on Cyprus within the next 12-24 months if debt reduction were to continue on its current path, supported by tight expenditure control and consistent fiscal surpluses. A similar action could also occur if the currently very elevated current account deficit were to shrink, easing our concerns about Cypriot residents' external leverage. Lastly, we could raise the rating if we were to observe improved stability in the financial system. Further declines in NPLs on the banking sector's balance sheet would signal such an improvement, and this could reduce the banking sector's contingent liability risk to the government, reinforce the effectiveness of monetary policy transmission, and strengthen banks' access to debt capital markets.

Downside scenario

We could revise the outlook to stable if, within the next 12-24 months, external short-term debt levels began rising again, reversing the current encouraging trend of deleveraging in the economy. Rating pressure could also materialize if structural reform progress were to stall, creating meaningful delays to Cyprus' NextGenEU funding.

Table 6

Czech Republic (AA-/Stable/A-1+)

• Analyst: gabriel.forss@spglobal.com
• Latest publication: Czech Republic's 'AA-/A-1+' Foreign Currency And 'AA/A-1+' Local Currency Ratings Affirmed; Outlook Stable, Oct. 13, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 3
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our view that the buffers provided by Czechia's solid government and external balance sheets, including still sizable foreign currency reserves, will mitigate the adverse macroeconomic impact stemming high inflation and rapid monetary tightening.

Downside scenario

We could lower the ratings if adverse economic conditions result in a significant increase in budget deficits and government debt, above our current expectations. In addition, we could lower the ratings if Czechia's energy supply became constrained, for example from accentuated supply pressure, preventing the country from sustaining industrial production and leading to a much weaker medium-term growth outlook.

Upside scenario

We could raise the ratings if Czech income levels improve to those of similarly rated sovereigns globally, for example, due to implementation of economic and budgetary structural reforms enhancing the value-added nature of output.

Table 7

Denmark (AAA/Stable/A-1+)

• Analyst: michelle.keferstein@spglobal.com
• Latest publication: Denmark 'AAA/A-1+' Ratings Affirmed; Outlook Stable, Aug. 11, 2023

Rating score snapshot:

• Institutional assessment: 1
• Economic assessment: 1
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 3

Outlook: Stable

The stable outlook reflects our view that Denmark's adaptable, export-oriented, small, and open economy, with strong fiscal buffers and high institutional effectiveness, will successfully weather a temporary weakening of external conditions.

Downside scenario

We could lower the ratings if Denmark's budgetary position turned out markedly weaker than our forecasts. For example, budgetary strain could stem from slower economic growth or pressure to increase spending. We could also lower the ratings if geopolitical risks escalated significantly.

Table 8

Estonia (AA-/Negative /A-1+)

• Analyst: ludwig.heinz@spglobal.com
• Latest publication: ( Full Analysis) Estonia, Aug. 21, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 3

Outlook: Negative

The negative outlook reflects our view that a more protracted war in Ukraine risks imposing higher economic costs on Estonia's small, open economy with adverse effects for Estonia's fiscal, external, and monetary metrics.

Downside scenario

We could lower the ratings if the war's repercussions for Estonia are more significant than we currently expect, materially weighing on Estonia's public finances, growth, and competitiveness.

Upside scenario

We could revise the outlook to stable if the risks from the war subside without long-term implications for Estonia's economy or competitiveness.

(Latest research update published on Dec. 6, 2022)

Table 9

Finland (AA+/Stable/A-1+)

• Analyst : niklas.steinert@spglobal.com
• Latest publication: Finland 'AA+/A-1+' Ratings Affirmed; Outlook Stable, Oct. 27, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our expectation that Finland's economy will recover after 2023's downturn, thanks to real wage growth, higher consumption, and stronger external demand from Finland's main trading partners.

Downside scenario

We could consider a negative rating action in the next two years if Finland's economic outlook significantly deteriorates compared with our current expectations, leading to a pronounced and protracted deterioration in the country's fiscal position.

Upside scenario

We could raise the long-term ratings if structural reform efforts strengthen Finland's fiscal performance and significantly improve its external balance sheet.

Table 10

France (AA/Negative/A-1+)

• Analyst: remy.carasse@spglobal.com
• Latest publication: France 'AA/A-1+' Ratings Affirmed; Outlook Remains Negative, Dec. 1, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 2

Outlook: Negative

The negative outlook reflects our view of uncertainty relating to our forecast of France's public finances amid its high, albeit slowly declining, budget deficits and elevated general government debt.

Downside scenario

We could lower our sovereign ratings on France within the next 12 months if we believe budget deficits would not fall sufficiently to lead to a reduction of the general government debt-to-GDP ratio, or if general-government interest payments increase beyond 5% of general government revenue. Several factors could affect these dynamics, including:

• The inability to implement budgetary consolidation, for example due to persistently high public spending; or
• Weaker economic performance than we expect.

Upside scenario

We could revise the outlook to stable if risks to our forecasts subside, pointing to a solid trajectory of budgetary consolidation coupled with robust economic growth.

Table 11

Germany (AAA/Stable/A-1+)

• Analyst: niklas.steinert@spglobal.com
• Latest publication: (Full Analysis) Germany, Sept. 25, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our opinion that Germany's external and fiscal buffers, diversified economy, and proven institutional effectiveness will continue to provide sufficient rating buffers over the next two years.

Downside scenario

We could lower our ratings if Germany's fiscal position worsened significantly beyond our projections, with low prospects for improvement, and debt or contingent liabilities increased significantly. This would likely coincide with much deeper and protracted economic scarring in Germany or other adverse and unexpected developments, such as the deterioration of the European Central Bank's (ECB's) monetary flexibility.

(Latest research update published on March 24, 2023)

Table 12

Greece (BBB-/Stable/B)

• Analyst: samuel.tilleray@spglobal.com
• Latest publication: Greece Upgraded To 'BBB-/A-3' On An Improved Budgetary Position; Outlook Stable, Oct. 20, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 2

Outlook: Stable

The stable outlook captures balanced risks in the external environment that could affect Greece's open economy, alongside our expectation that persistent primary budget surplus targets will continue to drive the reduction in government debt.

Downside scenario

We could lower the ratings if Greece's budgetary performance and external imbalances, such as from the elevated current account deficit, worsened materially more than we expect.

Upside scenario

We could raise the ratings if Greece's net government debt-to-GDP ratio falls further to levels in line with that of peer sovereigns. We believe this would result from a combination of sustained solid primary budget surpluses over a protracted period and structural economic reforms that boost Greek economic competitiveness, and full deployment of the large NextGenerationEU funds available to Greece.

Table 13

States of Guernsey (A+/Stable/A-1)

• Analyst: samuel.tilleray@spglobal.com
• Latest publication: Guernsey 'A+/A-1' Ratings Affirmed; Outlook Stable, July 14, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 2
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects balanced risks to Guernsey's creditworthiness over our two-year outlook horizon.

Downside scenario

We could lower the rating if Guernsey's general government assets eroded by significantly more than we expect. This could happen if the consolidation measures implemented by the government prove insufficient to stabilize its funding needs. We could also lower the rating if a significant shift in the global regulatory, tax, and competitive environment undermined Guernsey's financial services sector.

Upside scenario

We could raise the ratings if Guernsey's economy significantly outperformed our expectations. Substantial improvements in the quality and timeliness of national income accounts data could also lead us to take a positive rating action.

Table 14

Iceland (A+/Stable/A-1)

• Analyst: niklas.steinert@spglobal.com
• Latest publication: Iceland Ratings Raised To 'A+ ' On Strong Growth and Fiscal Consolidation; Outlook Stable, Nov. 10, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 2
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects our view that Iceland's economy will continue to expand over the next two years, while recording only modest fiscal and current account deficits.

Downside scenario

We could lower the ratings if Iceland's fiscal or external performance worsened significantly compared to our forecasts. This could happen, for example, if an unanticipated shock hampered the country's key tourism sector.

Upside scenario

We could raise the ratings if Iceland's public finances strengthened significantly more than we currently anticipate, for instance, as a result of stronger growth outcomes or additional measures adopted by the government.

Table 15

Ireland (AA/Stable/A-1+)

• Analyst: johanna.melinder@spglobal.com
• Latest publication: (Full Analysis) Ireland, Nov. 20, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our expectation that Ireland's general government debt to GNI* will continue declining thanks to its resilient economic growth and fiscal performance over the next two to three years.

Downside scenario

We could lower the ratings on Ireland if its fiscal performance deteriorates significantly. A weaker budgetary position could result, for example, from a long-term decline in the country's competitiveness against a backdrop of continued concentration in revenue sources.

Upside scenario

While less likely in the next couple of years, we could raise the ratings on Ireland if stronger economic growth and fiscal outcomes lead to much faster reduction in government debt than we project, and the revenue base becomes more diversified.

(Latest research update published on May 19, 2023)

Table 16

Italy (BBB/Stable/A-2)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: Italy 'BBB/A-2' Ratings Affirmed; Outlook Stable, Oct. 20, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 2
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 5
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 2

Outlook: Stable

The stable outlook balances our view of a slower budgetary consolidation than we previously expected, including due to increasing interest payments on large government debt, against the significant economic stimulus EU funds should provide.

Downside scenario

We could lower the ratings should the government's budgetary trajectory deviate significantly from its targets. An only partial implementation of structural economic and budgetary reforms, especially those attached to the disbursement of EU funds, would also pose risks to economic growth and public finances, and consequently put downward pressure on the rating.

Upside scenario

We could raise the ratings if budgetary performance improves, for example due to implementation of deficit-reducing policies or stronger-than-expected economic growth, leading to a decline in government debt as a share of GDP.

Table 17

States of Jersey (AA-/Stable/A-1+)

• Analyst: samuel.tilleray@spglobal.com
• Latest publication: (Full Analysis) States of Jersey, July 17, 2023

Rating score snapshot:

Institutional assessment: 2

Economic assessment: 2

External assessment: 4

Fiscal assessment – Flexibility and performance: 1

Fiscal assessment – Debt burden: 2

Monetary assessment: 5

Outlook: Stable

The stable outlook reflects balanced risks to Jersey's creditworthiness over our two-year outlook horizon.

Downside scenario

Rating pressure could build if Jersey's policymakers failed to adequately mitigate any economic fallout from external risks, particularly to the large financial services sector. These risks could pertain, for example, to changes in the global regulatory, tax, and competitive environment, or to shifts in the U.K.'s financial sector following its departure from the EU single market. Rating pressure could also materialize if we projected that Jersey's fiscal asset buffer were to fall consistently below 100% of GDP.

Upside scenario

We could raise the ratings if we saw a substantial improvement in the availability of external statistical data, such as full information on the balance of payments and international investment position, potentially revealing lower external financing risks to Jersey's economy and public finances than we currently assume.

(Latest research update published on Jan. 13, 2023)

Table 18

Latvia (A+/Negative /A-1)

• Analyst: gabriel.forss@spglobal.com
• Latest publication: (Full Analysis) Latvia, June 19, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 3

Outlook: Negative

The negative outlook reflects our view that a more protracted and less predictable conflict between Russia and Ukraine could impose higher economic and security costs on Latvia's small, open economy, leading to worsening fiscal, external, and monetary metrics.

Downside scenario

We could lower the ratings if the conflict's negative effects are more significant than we expect, or if the war escalates, weighing on Latvia's public finances, growth, and competitiveness.

Upside scenario

We could revise the outlook to stable if the rising risks from the conflict subside without long-term implications for the country's economy or competitiveness.

(Latest research update published on Dec. 6, 2022)

Table 19

Liechtenstein (AAA/Stable/A-1+)

• Analyst: michelle.keferstein@spglobal.com
• Latest publication: Liechtenstein 'AAA/A-1+' Ratings Affirmed; Outlook Stable, Nov. 24, 2023

Rating score snapshot:

• Institutional assessment: 1
• Economic assessment: 1
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 3

Outlook: Stable:

The stable outlook reflects our view that Liechtenstein's strong budgetary position and extensive financial buffers, along with its high policy effectiveness and prudent regulatory framework, will protect the principality's creditworthiness from the global economic slowdown and tightening financial conditions.

Downside scenario

We could lower the ratings if we observed a significant weakening of the principality's public finances and increased international tax or financial regulatory pressure on Liechtenstein, among other financial centers. This could severely constrain government revenues and hinder political strategy and effectiveness over a prolonged period.

Table 20

Lithuania (A+/Negative /A-1)

• Analyst: johanna.melinder@spglobal.com
• Latest publication: Lithuania 'A+/A-1' Ratings Affirmed; Outlook Remains Negative, Dec. 1, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 3

Outlook: Negative

The negative outlook reflects our view that the protracted conflict between Russia and Ukraine could impose higher-than-expected economic and security costs on Lithuania's small, open economy, leading to worsening fiscal, external, and monetary metrics.

Downside scenario

We could lower the ratings if the fallout from the conflict proved to be more significant than we expect, or if it escalated, weighing on Lithuania's public finances, growth, and competitiveness.

Upside scenario

We could revise the outlook to stable if the risks from the conflict subside without long-term implications for the economy or the country's competitiveness.

Table 21

Luxembourg (AAA/Stable/A-1+)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: (Full Analysis) Luxembourg, July 31, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects Luxembourg's ample fiscal space, allowing it to weather the current stresses on its budget and economy, without denting its net government asset position. The outlook also mirrors our view that the country has the policy flexibility and financial soundness to overcome potential changes to its attractive low tax system, upon which its role as a financial sector relies partially.

Downside scenario

We could consider a negative rating action if the effects of the changing corporate taxation framework are more pronounced than we anticipate and weaken the country's economic growth prospects and budgetary performance. The rating could also come under pressure if credit growth surged to levels that jeopardized Luxembourg's economic and financial stability by, for example, sparking an unsustainable acceleration in asset valuations.

(Latest research update published on Aug. 1, 2022)

Table 22

Malta (A-/Stable/A-2)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: (Full Analysis) Malta, Dec. 11, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 3

Outlook: Stable

The stable outlook balances our expectation that energy budgetary support will slow the reduction of budget and current account deficits against resilient economic and budgetary prospects in the medium term supported by the EU recovery plan (partially financed by EU funds) and the gradual recovery in tourism.

Downside scenario

We could lower the ratings if the Russia/Ukraine conflict's adverse effects on the Maltese economy are more severe or prolonged than anticipated, with an associated deterioration of the government budget and current account balances significantly worse than our projections. A reversal of the government's efforts to further enhance governance and anti-money-laundering frameworks and implementation could also trigger a negative rating action.

Upside scenario

We could raise the ratings if Malta's budget and current account balances significantly improve, or if the economy diversifies substantially to reduce vulnerability to external shocks.

(Latest research update published on Sept. 9, 2022)

Table 23

Netherlands (AAA/Stable/A-1+)

• Analyst: sebastein.boreux@spglobal.com
• Latest publication: Netherlands 'AAA/A-1+' Ratings Affirmed; Outlook Stable, Oct. 20, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our view that the Netherlands will maintain strong credit metrics over the next two years. The Netherlands' wealthy and diversified economy and proven institutional effectiveness provide strong rating buffers.

Downside scenario

The ratings could come under pressure in case of a significant and protracted deterioration in the country's long-term productive capacity, resulting in a significant negative revision to our budgetary and external forecasts.

Table 24

Norway (AAA/Stable/A-1+)

• Analyst: johanna.melinder@spglobal.com
• Latest publication: (Full Analysis) Norway, Sept. 11, 2023

Rating score snapshot:

• Institutional assessment: 1
• Economic assessment: 1
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 1

Outlook: Stable

The stable outlook reflects our view that Norway has ample financial buffers and headroom to withstand a temporary economic shock without a significant impact on its credit metrics. The sovereign has extremely strong fiscal and external net asset positions, which together with high wealth levels, strong institutions, and an effective monetary policy regime, support the rating.

Downside scenario

Our 'AAA' rating on Norway could come under pressure if the country's robust external and fiscal balance sheets rapidly erode, combined with significantly weaker institutions and governance standards; or geopolitical risk markedly rises, leading to external security risk for the country.

(Latest research update published on March 12, 2021)

Table 25

Portugal (BBB+/Positive /A-2)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: Portugal Outlook Revised To Positive On Resilient Growth And Government And External Deleveraging; Ratings Affirmed, Sept. 8, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 2

Outlook: Positive

The positive outlook reflects our view that Portugal's budgetary and external position will gradually improve, as a percentage of GDP and export receipts, supported by tourism and investments under large EU funds. Pragmatic and prudent policymaking will, in our view, underpin a steep decline in government debt.

Upside scenario

We could raise the ratings on Portugal within the next 24 months if the sovereign's external position strengthens, notably through a decline in external financing needs or short-term external debt, or if economic growth is significantly stronger than we currently forecast.

Downside scenario

We could revise the outlook to stable within the next 24 months if the projected improvements in the economy's external position and the government's budgetary position fail to materialize. This could occur if, for instance, Portugal's current account deteriorates markedly, or government debt fails to decline because of spending pressures.

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Slovakia (A+/Stable/A-1)

• Analyst: ludwig.heinz@spglobal.com
• Latest publication: Slovakia 'A+/A-1' Ratings Affirmed; Outlook Stable, Nov. 17, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our expectation that Slovakia's fiscal deficits will narrow over the next two to three years and it will preserve prudent fiscal policy. It also reflects our view that the economy will remain resilient in the near term despite challenges to the medium-term growth outlook.

Downside scenario

We could lower our ratings if, contrary to our current forecast, fiscal deficits remain elevated over the next two to three years, or if we observe more unorthodox policymaking or challenges to the country's institutions. We could also lower the ratings if we consider that Slovakia's medium-term growth outlook is substantially hampered by challenges to its auto sector.

Upside scenario

We could raise the ratings if fiscal balances improve significantly more strongly than we expect and the economy proves adaptable to emerging structural challenges, including through effective policymaking.

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Slovenia (AA-/Stable/A-1+)

• Analyst: gabriel.forss@spglobal.com
• Latest publication: Slovenia 'AA-/A-1+' Ratings Affirmed; Outlook Stable, June 9, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 3
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects that we expect the country's economy to remain resilient with gradual budgetary consolidation, despite inflationary headwinds posing challenges to Slovenia's large manufacturing sector. Fiscal and external buffers remain significant, while private debt is low.

Upside scenario

We could raise our ratings on Slovenia if growth proves more resilient than projected, boosting GDP per capita without undermining the economy's strong external position, while budget deficits recede.

Downside scenario

We could lower our ratings on Slovenia if the country deviates significantly and negatively from our current budgetary forecast, or if economic growth is considerably weaker than we project. The adverse effect of a large demographic shift due to an aging population also represents a significant risk to economic growth and public finances, if left unchecked.

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Spain (A/Stable /A-1)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: Spain 'A/A-1' Ratings Affirmed; Outlook Stable, Sept. 15, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 2
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects balanced risks to Spain's creditworthiness, given elevated government debt, weakening demand in key European trading partners, and political uncertainty. At the same time, we forecast that the Spanish economy will expand faster than the eurozone average, given the resilience of the labor market, and despite our expectation of somewhat higher oil and gas prices during the remainder of 2023 and in 2024. Private-sector deleveraging continues and the winding down of the European Central Bank (ECB)'s balance sheet should reduce Spain's overall net international investment position (IIP) liability to the rest of the world.

Downside scenario

We could lower the ratings if, contrary to our current expectations, the economy's external position and the government's budgetary position deteriorate. This could occur if, for instance, Spain's current account deteriorates unexpectedly, or government debt reverses its declining trajectory because of budgetary slippages--for example, due to spending pressures.

Upside scenario

We could raise the ratings if the sovereign's external position strengthens, government debt to GDP declines at a faster pace than we currently expect, and Spain's commercial banking system remains profitable, and largely domestically funded (in net terms).

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Sweden (AAA/Stable/A-1+)

• Analyst: johanna.melinder@spglobal.com
• Latest publication: (Full Analysis) Sweden, Oct. 30, 2023

Rating score snapshot:

• Institutional assessment: 1
• Economic assessment: 1
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 1

Outlook: Stable

The stable outlook reflects our view that Sweden has ample headroom to withstand a temporary economic shock. Considering its low government debt burden, Sweden's fiscal position is strong and sustainable. Sweden also has a strong external balance sheet and effective institutions, supporting the 'AAA' rating.

Downside scenario

We could lower the rating if the economy is much weaker than expected, leading to permanently lower economic activity and large, structural fiscal deficits that erode Sweden's strong fiscal position. We could also take a negative rating action if the government's policy responses were heavily impaired by fragmented politics, leading to significant economic inefficiencies or imbalances.

(Latest research update published on Oct. 28, 2022)

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Switzerland (AAA/Stable/A-1+)

• Analyst: ludwig.heinz@spglobal.com
• Latest publication: Switzerland 'AAA/A-1+' Ratings Affirmed; Outlook Stable, Aug. 11, 2023

Rating score snapshot:

• Institutional assessment: 1
• Economic assessment: 1
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects our view that Switzerland's strong fiscal and external buffers, resilient and diversified economy, monetary policy flexibility, and track record of effective policymaking will enable the country to weather potential external and domestic shocks.

Downside scenario

We could lower the ratings on Switzerland over the next two years if we observed that, contrary to our expectations, the predictability and effectiveness of its policymaking had deteriorated. We could also take this action if adverse external shocks were to materially deteriorate Switzerland's export base, significantly weakening the country's balance of payments position. A materialization of contingent liabilities emanating from the country's large financial sector could also be negative for the ratings, if coupled with other adverse developments affecting the sovereign. We currently view such scenarios as unlikely, however.

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United Kingdom (AA/Stable/A-1+)

• Analyst: maxim.rybnikov@spglobal.com
• Latest publication: United Kingdom 'AA/A-1+' Ratings Affirmed; Outlook Stable, Oct. 20, 2023

Rating score snapshot:

• Institutional assessment: 2
• Economic assessment: 1
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 1

Outlook: Stable

The stable outlook reflects the U.K.'s resilient economic performance despite multiple headwinds, as well as our expectation that general government deficits will steadily moderate over the next two to three years. This is balanced against risks stemming from the U.K.'s constrained fiscal position, characterized by elevated net general government debt amid higher interest rates and possible spending pressures given the upcoming general election (due January 2025 at the latest). Under our base-case projections, net general government debt modestly declines from 2024 but the primary budgetary position remains in deficit through 2026.

Downside scenario

We could lower the ratings on the U.K. if its fiscal performance significantly weakened compared with our forecast, in turn reducing the government's policy headroom to react to future economic shocks.

Upside scenario

We could raise the ratings if the U.K.'s fiscal performance strengthened, with reduced downside risks to budgetary performance and stabilizing net general government debt. This could result, for example, from stronger-than-expected growth or additional medium-term fiscal consolidation measures enacted by the government.

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