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Moody’s: EC faces structural and institutional difficulties especially in Hungary, Poland and Romania

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The stable perspective attributed to sovereign ratings in Central and Eastern Europe (CEE) reflects the still solid economic growth which is slowing down and the debt profile which generally supports ratings, compared to structural and institutional difficulties and harsher financial conditions , Moody’s Investors Service agency considers in a report issued on Thursday.

In case economic advance slows down next year, income taxes will be reduced and budget positions will easily deteriorate  because some expenses will difficult to carry out. Parliamentary elections in Poland and presidential ones in Romania risk to relax fiscal policy and deepen deficit.

However, the growth rate will continue to support a new reduction of debt value in all CEE states except for Romania, whose fiscal deficit remains over the debt stabilising limit. As a result, Moody’s anticipates that fiscal indicators will support the agency’s evaluation about fiscal solidity of CEE countries.

Some weaknesses concerning the rule of law and institutional independence, next to tensions with EU institutions and the advance of anti-system parties will increase risks and political uncertainties especially in Hungary, Poland and Romania. These tensions do not have impact yet on consumers’ or businessmen’s confidence but led to a deterioration of Moody’s evaluation on institutional solidity in the region.

“We expect CEE to register a robust but slow annual increase, based on solid domestic demand, in the context of a slower rate at European level and of global commercial tensions,” said analyst Olivier Chemla, vicepresident of Moody’s and co-author of the report.

In 2019, CEE GDP was meant to register a 3.7% increase but economic performance will be different in states in the area, from an advance of 2.5% in Croatia to 4.3% in Slovakia. The significant salary increases and the record low level of unemployment will continue to be the growth engine of private consumption. However, the slowing down of euro zone expansion and the gradual normalization of monetary policies start to affect macroeconomic conditions in CEE.

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