Moody's Investors Service raised Spain's sovereign credit rating one notch from Baa3 to Baa2, citing "sustainable" improvement in the Iberian nation's economy.

Referring to Friday's upgrade, Moody's analyst Kathrin Muehlbronner told Efe the ratings agency was confident Spain's recovery had staying power because the government has implemented a broad package of financial reforms.

She also said Spain had bolstered its export model and become more competitive, predicting GDP growth of betweeen 1.2 percent and 1.3 percent in 2015 and 1.5 percent in 2016.

Spain's economy has been battered in recent years by the global recession and the collapse of a massive real-estate bubble that left many banks saddled with toxic property assets, slipping into recession twice since 2008.

Muehlbronner added that a persistently high budget deficit, elevated private sector debt and the weakness of the banking system would continue to hamper growth.

Another key check on growth is high unemployment of around 26 percent, which will only be reduced slowly, the analyst said.

Moody's expects Spain's public debt, which stood at 94 percent of GDP in 2013, will continue to rise due to the budget deficit and top out at 102 percent of GDP in 2016, Muehlbronner said, adding that it was then expected to fall steadily starting that year. EFE