NEW YORK (Reuters) - Slow economic growth and austerity measures in European Union countries may have negative rating implications for some sovereign ratings, Moody’s Investors Service said on Monday.
“Given the magnitude of the fiscal challenge and the need to sustain tight fiscal policy for several years, the risks to economic growth are clearly a downside risk for sovereign ratings,” Moody’s said in a report.
Moody’s said it continues to monitor the impact of gross domestic product growth and government financial strength on European sovereigns as the deleveraging process unfolds.
It noted that governments including Latvia, Lithuania, Hungary, Greece, Portugal and most recently Ireland have been downgraded over the past 24 months.
Spain’s Aaa rating was recently placed on review for possible downgrade, due to a poor growth outlook and its negative impact on government financial strength.
“Those countries that are facing persistently strong deleveraging could experience renewed negative pressure on their ratings in the future, depending on how long the process lasts,” Moody’s said.
Countries such as Iceland, Bosnia and Herzegovina, and the Ukraine face “high” event risk, the report found. Most Aaa-rated nations face “low” to “very low” event risk.
Moody’s does not expect a strong credit rebound to take hold between 2011 and 2016.
“Moody’s does not expect credit to turn negative again, but credit creation is unlikely to experience a strong rebound anytime soon either,” the report said.
Reporting by Walden Siew; Editing by Leslie Adler