Estonia’s Rating Raised to AA- by S&P on Economic Growth, Strong Finances
The long-term foreign and local currency bond rating was increased by two notches to AA-, the fourth-highest investment grade, from A, S&P said today in an e-mailed statement. The outlook was lowered to stable. S&P rates Slovenia AA and Slovakia, the third eastern European euro member, A+.
Estonia’s economy grew 8.5 percent from a year earlier in the first quarter, the fastest pace in the 27-member European Union. The country, which adopted the euro in January, has benefited from rising demand for its exports in Sweden and Finland after suffering the bloc’s second-deepest recession in 2008 and 2009, when the economy shrank by almost a fifth.
“I was expecting a one-notch upgrade by S&P so the two- notch upgrade came as a positive surprise, especially given the increased pessimism on global-growth momentum and financial markets in recent weeks,” Yarkin Cebeci, an Istanbul-based economist at JPMorgan Chase & Co., said by e-mail.
Fitch raised Estonia’s rating to A+, the fifth-highest investment grade, on July 5, citing similar reasons after the government implemented austerity measures equal to 9 percent of gross domestic product in 2009. Moody’s rates Estonia A1, its fifth-highest investment grade. Estonia finished 2010 with the EU’s only budget surplus and the bloc’s lowest public debt.
“We believe Estonia will be able to sustain strong economic growth while maintaining a close-to-balanced government budget and an improved external position over the medium term,” S&P said.
While Estonia has no outstanding bonds, investors speculate on its creditworthiness by trading credit-default swaps. Five- year Estonian CDS closed 2 points higher yesterday at 115, according to prices from data provider CMA. The third-riskiest EU member two years ago, it’s now among the 10 safest.
S&P’s decision reflects rising trustworthiness of the Estonian economy, the central bank’s Deputy Governor Ulo Kaasik said today in an e-mailed comment. The government should maintain conservative policies and set stricter limits for future budget spending, he added.
“Estonia’s economic and fiscal situation looks exceptionally good, particularly in the context of some other euro-zone economies,” Violeta Klyviene, a Vilnius-based economist at Danske Bank A/S, said by e-mail. “This doesn’t mean there are no challenges or problems over the medium term -- slowing external demand, relatively high unemployment.”
Exports of goods grew 43 percent from a year earlier in June, the slowest pace in four months, the statistics office said today. The unemployment rate was 14.4 percent in the first quarter.
The country’s ruling coalition, which won a March 6 general election, is seeking to balance the budget and accumulate gold and foreign-currency reserves during its four-year term. The $19 billion economy may grow 6.3 percent this year and 4.2 percent in 2012 and 2013, the central bank forecast in June.
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