Hungary, together with Latvia and Iceland, are in a state of “fragile stabilization”, but it is too early to speak of a recovery, ratings company Moody's said in a comment on Tuesday.
Moody's said it could not yet concluded with any certainty that the economies of Latvia, Hungary and Iceland have reached the bottom of their respective downturns, which have been exacerbated by the crisis. All three countries' sovereign ratings have been downgraded multiple times over the past two years and all still carry negative outlooks, signaling the possibility of further downgrades in the next 12 to 18 months.
Moody's acknowledged that the economic output of the three countries “appears to be leveling out” and economic indicators are no longer falling as fast as earlier, which has been reflected in the countries' financial markets.
“However, it is still too early to speak of a recovery in these countries because it is not yet clear whether these trends are sustainable,” said Dietmar Hornung, a VP in the Sovereign Risk Group. “True upturns in the data, as opposed to a stabilization or a moderation in the rate of decline, are still limited.”
Moody's noted that much of the reported improvements are linked to the external factors, as the eurozone performed better than expected. The domestic side of the economies remain weak as households and companies struggle with elevated debt levels. The countries' governments have been unable to stimulate their economies as advanced countries have, instead they were forced to cut spending and raise taxes to respond to the shrinking revenue base, Moody's added.
Planned cuts in public sector employment could lead to renewed weakness in domestic investment and consumption, Moody's said. (MTI-Econews)