Moody's may downgrade Estonia

Moody's Investors Service said it placed Estonia's A1 foreign- and local-currency bond ratings and A1 foreign-currency bank deposit ceiling on review for possible downgrade.

The country's foreign-currency debt ceilings remain unchanged at Aa1/Prime-1 with a stable outlook.

The agency said the primary reason for the review is the severe deterioration in the global and regional macroeconomic environment, which has hit the Baltic countries especially hard. The size and scale of the shock raise concerns that Estonia's economic model may be seriously damaged, eroding long-term growth prospects and the government's financial strength.

The ongoing decline in economic activity and the shortage of liquidity in the region have led to an adverse feedback loop, whereby declining asset prices are reducing confidence and further weakening the broader economy, Moody's said. The agency believes the Estonian government is well positioned to cope with this difficult downturn given its favorable initial debt metrics but said Estonia's credit outlook has weakened compared to many other A1-rated governments.

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