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New Europe Weekly

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Rating cycle turning decisively negative

Fri, Nov 21 2008, 13:56 GMT
by New Europe/EMEA Research

Danske Bank A/S

As the global credit crisis has intensified, the credit rating agencies have changed their view on the central and eastern European countries' ratings in a decisively more negative direction.

The rating cycle in CEE turned negative more than a year ago, but the negative ratings action has intensified in recent months as a number of CEE countries have been downgraded.

Hardest hit are the countries that also have been the hardest hit by the global credit crisis: Ukraine, Hungary, Kazakhstan, Romania, Bulgaria and the Baltic States. Interestingly, Russia that had seemed to have a rock solid rating status has been hit by negative ratings action.

Romania has recently been downgraded by both Fitch and Standard & Poor's and both agencies now rate Romania as 'junk'. Hence, Romania is the only EU country that is not investment grade. However, there is a risk that other countries in the region might lose investment grade status.

The negative ratings action is affecting the funding costs of the countries hit by the downgrades and as such should be a serious worry for CEE policy makers. Unfortunately policy makers in the countries that have been affected by negative ratings action have tended to argue that the downgrades have been 'unfair' rather than implement policy to re-establish the previous higher rating.

Looking forward we fear that we will see more ratings downgrades across the region if swift policy action to reduce imbalances in the CEE economies is not implemented.

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Published on  Fri, Nov 21 2008, 14:08 GMT