Credit rating agency Fitch affirms Estonia's long-term score at AA-

Fitch Ratings logo
Fitch Ratings logo Source: Reinhard Krause/Reuters/Scanpix

Big-three credit rating agency Fitch has affirmed Estonia's long-term foreign-currency issuer default rating at AA-, with a stable outlook, Baltic News Service reports.

The rating reflects Estonia's record of sound policies supported by strong economic institutions and EU and eurozone membership, both of which have underpinned very low debt levels and a net external creditor position, BNS reports.

Public debt dipped to an estimated 8.1 percent of GDP as of Q1 2019, and is projected to fall further, to 7.5 percent at the end of 2020, owing to continued prudent fiscal policy.

Estonia's public debt ratio is currently the third-lowest of all Fitch-rated sovereign states, according to BNS.

Fitch forecasts a general government deficit of -0.3 percent in 2019. It also forecasts the deficit to average -0.2 percent of GDP in 2020-2021, as a tighter labor market supports income tax collection growth, and capital expenditure rises to match EU funds absorption. 

Real GDP growth will ease to 3.2 percent in 2019, according to Fitch.

Growth remained solid in Q2 2019, but is showing signs of slowing. Consumption has started to weaken, but this was partly offset by the strong investment growth, Fitch said.

Fitch projects the unemployment rate to decline further, to 5.0 percent in 2019, from 5.4 percent the previous year.

The strength of the economy continues to tighten labor market conditions, pushing nominal wage growth to 8.6 percent. Productivity growth has not kept up with real wage growth, raising concerns over competitiveness. 

Headline inflation should decline to 2.4 percent in 2019. A slowing economy will pull inflation down to 2.0 percent by 2021.

Fitch projects the current account surplus to narrow to 1.3 percent of GDP in 2019 from 1.9 percent in 2018.  The agency expects the surplus to stabilize at around 1.2 percent in 2020-2021.

Further improvement in structural indicators could lead to a more positive rating, whereas factors that could lead to negative rating action include economic or financial shocks that adversely affect Estonia's public finances, macroeconomic environment and financial stability.

Editor: Andrew Whyte

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