Fitch downgrades Estonia

Fitch Ratings said it downgraded Estonia's long-term foreign-currency issuer default rating to A+ from AA-.

“The downgrade reflects a deterioration in public finances. General government debt is forecast to rise to 21.1% of GDP at end-2023 and remains on an upward path in the medium term, despite fiscal consolidation measures introduced in June. While debt/GDP will remain low compared with the peer median of 54%, it is more than double the level when Fitch upgraded Estonia to AA- in 2018 (8.2%), when the agency anticipated debt/GDP to be stable,” the agency said in a press release.

For 2023, Fitch said it expects a deficit of 3.6% of GDP this year and should then narrow to 2.6% in 2024 and 2% in 2025.

However, “Real GDP growth has remained weak. A 0.6% qoq decline in real GDP growth (down 3.2% yoy) in 1Q and weak high-frequency indicators for 2Q point to a second consecutive year of contraction (the -1.3% growth in 2022 was the worst in the E.U.). The economy is being hit by the sanctions on Russia and Belarus, which have disrupted supply chains for some industries, and the weakness of the Nordic real estate sector, a major market for Estonia manufacturing,” the agency said.

The outlook is stable.

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