SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 13 June 2016ContactsGlenn Levine 1.212.553.9595Assc Dir-Sr Research Analyst glenn.levine@moodys.comXian Li 1.212.553.1404Senior Research Analyst xian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Sovereign Risk ReportPortugals Large Deficit and Sluggish Economy Push Sovereign Risk Measures Higher A large budget deficit, elevated government debt, and a slowing economy have pushed Portugals sovereign credit risk measures higher in recent months. Its five-year sovereign EDFTM (Expected Default Frequency)1 metric increased from 0.54% to 0.59% in the week ended June 10, up from 0.27% at the start of 2016. Portugals large increase in sovereign risk doubling since the start of the year make it the worst performing sovereign so far in 2016.Exhibit 1Portugal's One- and Five-Year Sovereign EDF Measures (%)Portugals increase in sovereign credit risk stems from a rekindling of the economic and fiscal problems that have persisted, to varying degrees, since 2009. Its gross government debt still sits at 128% of GDP, so any slight wobble in the economy or government is often enough to roil financial markets and raise questions around the governments credit risk.MOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 13 June 2016 Sovereign Risk Report: Portugals Large Deficit and Sluggish Economy Push Sovereign Risk Measures HigherThe latest uptick in sovereign credit risk stems from several recent developments. The first is that the Portuguese economy is sluggish and may slow further in 2016. GDP expanded 1.6% in 2015, and Portugals central bank expects growth of 1.3% in 2016. Spains economy, by contrast, grew 3.2% in 2015, with only a modest slowdown predicted in 2016. The second issue is that Portugals banking sector appears to be in trouble. The countrys largest bank - Caixa Geral ...
