LJUBLJANA (Slovenia), November 20 (SeeNews) - Erste Group said on Monday it sees a good chance of upgrades of the sovereign credit ratings of Slovenia and Croatia next year on the back of improved external environment and foreign debt situation in Southeast Europe (SEE).
Erste Group's analysts also said in a weekly macroeconomic outlook report that rating agencies Fitch and Moody's could upgrade the outlook of Serbia's sovereign ratings to "positive", while Romania’s rating is estimated as 'properly balanced'.
The economic and fiscal fundamentals have recently notably improved in Croatia and the mid-term outlook looks more promising, as the 2016 fiscal deficit slipped below 1% of gross domestic product (GDP) and similar levels are expected in the years ahead, while public debt sustainability has improved, Erste said.
"In addition, the Agrokor situation looks more stable (although there are still uncertainties) and we see no major risks in terms of political stability. We could, therefore, see a one-notch upgrade from all agencies during the first half of 2018."
Slovenia is one of the growth champions in the region this year, with an expected growth rate of above 4% and solid growth outlook of around 3.5% in the mid-run. The country's fiscal position is also stable, with the deficit figure hovering around 1% of GDP and the debt-to-GDP ratio gradually falling towards 70% of GDP.
"As the overall macro and fiscal picture is favourable, we could see some upgrades ahead, especially there is a relatively strong discrepancy between the agencies."
In Serbia, the year 2017 can be described as a mixed picture, as weather-related one-offs in the energy and agricultural sectors notably blurred growth performance, while budget execution exceeded all expectations, which led to stabilisation and a relatively notable reduction in the public debt to GDP ratio.
"We, therefore, do not expect any rating upgrade in the short run, but we could see Fitch and Moody’s aligning with S&P’s positive outlook," Erste said.
Romania is currently rated at the first stage of investment grade with a "stable" outlook by the major rating agencies. While its rating is supported by relatively low public debt and a stable banking sector, the downside risks have increased in recent quarters due to the pro-cyclical fiscal policy and rapid increase in wages. The current account and budget gaps have gradually widened, increasing Romania’s vulnerability to adverse shocks, Erste noted.
"We think that Romania’s rating is properly balanced if the government moves away from fiscal loosening in 2018 and the external environment remains favourable."
The four countries currently have the following long-term issuer default ratings from the three rating agencies: