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Friday, 29.03.2024, 13:42
Moody’s affirms Estonia's A1 rating with stable outlook
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.