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"The negative outlooks reflect the heightened downside risk of an abrupt slowdown in capital inflows and a costly macroeconomic adjustment" |
That’s the conclusion of Fitch Ratings, which is warning that widening current account deficits in several countries in the region pose a threat to their economic stability. The London-based ratings agency recently slashed the outlooks on its ratings for Bulgaria, Estonia, Latvia and Romania from stable to negative, principally as a result of growing trade imbalances. In December, Fitch had also cut the outlook on its rating for Lithuania from stable to negative, citing similar concerns.
"Current account deficits in the Baltic states, Bulgaria and Romania have risen to levels that look disconcertingly stretched by current global or historical standards," says Edward Parker, head of emerging Europe sovereigns at Fitch. "External deficits that were easy to fund in times of abundant liquidity and risk appetite may be harder to finance following the global credit shock. The negative outlooks reflect the heightened downside risk of an abrupt slowdown in capital inflows and a costly macroeconomic adjustment."
In a report entitled Mind the Gap!, Fitch estimates the 2007 current account deficits at 25% of GDP in Latvia, 19.5%