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Friday, September 14, 2007

And Moody's Make It A Hat-trick

Following in the footsteps of Fitch's and Standard and Poor's (which I reported on in this post), the ratings agency Moody's has now downgraded the Latvian rating outlook from positive to stable.

Kenneth Orchard, Moody's Vice-President and Senior Analyst for the Baltic region said in a press release that:

"Latvia's economy is currently expanding at a very rapid rate.... Very fast growth has brought many benefits, but the risk is that a slowdown could be somewhat sharper than previously thought.....Large-scale foreign borrowing by the private sector has fuelled household consumption and investment in property, which have been the primary drivers of economic growth over the past few years.....The rating agency believes that property markets are exhibiting bubble-like characteristics, although prices have started to decline. Current account deficits, as a percentage of GDP, are now amongst the highest in the world. In the current macroeconomic context, Moody's believes that both these governments may face greater fiscal challenges than they anticipate"

As I argued in this post here, after the criticism to which they have been exposed during the sub-prime mortgages turmoil, it is only to be expected that these agencies are going to be tightening up their assessment procedures. Prime candidates for ongoing problems would seem to me to be Japan, Italy, Hungary and the Baltic States. Everything really depends on how far the credit crunch affects the real economy on the global level, and how rapid this autumns growth slowdown actually turns out to be.

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