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Moody’s affirms Estonia's A1 rating with stable outlook

BC, Tallinn, 24.07.2017.Print version
The international rating agency Moody’s Investors Service has affirmed Estonia's A1 government bond rating with a stable outlook, informs LETA/BNS.

The agency said that the factors supporting the affirmation are the resilience of Estonia's economy to external shocks, the government's very low debt burden and the country's susceptibility to geopolitical event risk.

 

The resilience of Estonia's economy to external shocks remains strong. Estonia's average economic growth of 3.7% during 2010-2014 was amongst the highest in the euro area, reflecting the significant competitiveness gains achieved in 2010 through a sharp reduction in labor costs. At the same time, Estonia's economy has largely withstood more recent shocks from the economic contraction in Russia and weak growth in Finland, the agency said.

 

Estonia's real exports grew by 4.0% in 2016, despite a contraction in Russia, one of its traditional export markets, and the ongoing trade embargo on agricultural exports to this country. This reflects Estonian exporters' ability to re-orientate towards faster growing markets, including China and Germany. Investment prospects have also improved, which supported by EU funds will enhance the resilience of the economic recovery underway. Estonia this year and in the next few years will also benefit from stronger growth in the demand of its main trading partners.

 

As a result, Moody’s expects the economy to expand by 3.0% and 2.8% in 2017 and 2018, slower than pre-crisis but above expected average growth in the euro area over the next two years.

 

The rating outlook will remain stable as Moody’s estimates that a planned fiscal loosening will not risk Estonia's very prudent fiscal position, which will continue to be among the strongest in the agency's rating universe. The country's forward looking economic policies also support further income convergence towards the EU average.

 

On the labor market Moody’s expects that Estonia's limited domestic labor supply will contribute to a tightening of the labor market and continue to place upward pressure on wage growth in the coming years, posing a threat to Estonia's future competitiveness. Furthermore, the European Commission expects Estonia's working age population will shrink over the next decade, adding to competitiveness challenges in the medium term. This will also likely restrict the availability of suitable skills in the economy, which acts as a constraint to foreign investment, although the authorities are taking some steps to ease restrictions on economic immigration, including in the growing IT sector.






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