Fitch affirms Czech Republic’s rating at A+, outlook stable

By bne IntelliNews May 16, 2014

Fitch Ratings has affirmed the Czech Republic’s long-term foreign and local currency Issuer Default Ratings (IDRs) at A+ and AA-, respectively with a stable outlook, the ratings agency said in a statement. The issue ratings on the Czech Republic's senior unsecured foreign and local currency bonds are also affirmed at A+' and AA-, respectively. The Country Ceiling is kept AA+ and the short-term foreign currency IDR at F1.

The country’s ratings are underpinned by its strong macroeconomic policy framework, low public and private sector indebtedness and a fairly flexible labour market that has helped to prevent rises in unemployment through the recession, Fitch said. The country’s fiscal deficit and gross debt, at 1.5% of GDP and at 46% of GDP at end-2013, are both below the respective A medians of 2.2% and 52.3%. Private sector debt stands at 72% of GDP, well below the EU’s average of 157%.

Fitch expects the fiscal stance of the new government to lead to a slightly wider fiscal deficit but it should stay under EU’s ceiling of 3% of economic outlook in both 2014 and 2015.  

Improved eurozone outlook, accommodative monetary policy and a renewed public investment drive will help the Czech economy grow 1.9% in 2014, after a two-year recession. Next year, growth should gain speed to 2.5%, according to the ratings agency.

The country’s ratings are also supported by its stable banking sector and the fact that the Czech Republic is a net external creditor.

Fitch, however, warned that due to the fact that the Czech economy has a high degree of openness, it is exposed to external shocks and the volatility of business cycles of its main trading partners.

Fitch would consider cutting the ratings in case of a severe negative growth shock that damages the country's economic and fiscal stability or fiscal slippage leading to a material rise in the public debt ratio. Conversely, higher economic growth could trigger a rating upgrade.

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