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Stable outlook for CEE sovereigns in 2019 - Moody's

Stable outlook for CEE sovereigns in 2019 - Moody's Source: The Institute of Financial Services Practitioners

LJUBLJANA (Slovenia), January 10 (SeeNews) – Moody's Investors Service said on Thursday the stable outlook for sovereign creditworthiness in Central and Eastern Europe (CEE) in 2019 reflects the region's still strong but slowing growth and generally supportive debt profiles.

This stable outlook is set against structural and institutional challenges and tighter global funding conditions, Moody's said in a press release announcing the publishing of a report on the outlook for sovereign creditworthiness in CEE.

"We expect the CEE region to record robust but slowing year-on-year growth, on the back of continued strong domestic demand in the context of a decelerating European-wide and elevated trade tensions," said Olivier Chemla, Moody's vice president, senior analyst and co-author of the report.

The CEE region - the Czech Republic, Poland, Slovakia, Bulgaria, Romania, Slovenia, Hungary and Croatia - will grow by 3.7% in real terms in 2019 but the economic performance will differ among countries, ranging from 2.5% in Croatia to 4.3% in Slovakia, Moody's said.

Strong wage growth and record-low unemployment will continue to drive private consumption but slowing euro area growth and a gradual normalisation of monetary policies are beginning to weigh on macro-economic conditions, Moody's noted.

“As growth slows next year, tax revenues will decelerate and headline budget positions will start to deteriorate slightly, especially as some spending will be difficult to unwind,” the ratings agency said, adding that the parliamentary elections in Poland and presidential elections in Romania risk loosening fiscal policy and widening the deficit further.

The growth levels will continue to support a further fall in debt levels in all CEE 8 countries except Romania, whose fiscal deficit remains above the debt-stabilizing threshold.

“As a result, Moody's anticipates that fiscal metrics will generally remain supportive of its assessment of the CEE countries' fiscal strength.”

“Some weakening in the rule of law and institutional independence, together with tensions with EU institutions and the rise of anti-establishment parties, increase political risks and policy uncertainty, particularly in Hungary, Poland and Romania,” according to the research. These tensions have not yet had an impact on consumer or business confidence, but have led to a deterioration in Moody's assessment of institutional strength in the region.

According to the report, external risks and tighter global financial conditions will add to policy challenges in 2019.