Moody's warns on Latvian, Hungarian recoveries

Published: September 24, 2009

The economic recovery of Latvia, Hungary and Iceland is fragile, warns a new report.

The paper from Moody’s Investors Service, titled ‘Latvia, Hungary & Iceland: Fragile Stabilisation But Far from Recovery’, notes that only these three countries have received multiple downgrades to their sovereign ratings during the past two years and that more may follow in the coming 18 months.

Although their economic output appears to be levelling and financial markets are better than previously, Dietmar Hornung, a vice-president in Moody’s sovereign risk group, warns that “it is still too early to speak of a recovery in these countries because it is not yet clear whether these trends are sustainable.”

One problem Moody’s highlights in these economies is that their governments have been unable to provide the same stimulus to domestic demand as other, more advanced countries. Instead, they have been forced to reduce expenditure and raise taxes.

Furthermore, upcoming cuts in public sector employment could dent confidence and cause renewed weakness in domestic investment and consumption.