Our 'BBB-' long-term sovereign credit rating on Spain is supported by our view of its diversified and prosperous economy, and the government's ongoing implementation of a comprehensive financial, fiscal, and structural reform agenda. The rating is constrained by our view of the high external leverage in Spain's economy, as well as its relatively low medium-term economic growth prospects and residual inflexibilities such as its still-highly-segmented labor market. The Spanish economy is undergoing prolonged structural adjustment. We estimate its real GDP will contract by about 1.5% in 2013 before slowly recovering. We forecast about 0.6% real GDP growth in 2014 on the back of still-weak consumption--constrained by declining disposable income due to high unemployment, reduced wages, and budgetary consolidation--but with improved
