Portugal Outlook Raised; Lithuania Sees Rating Upgrade

(RTTNews) - Credit rating agencies were out in full force on Friday and some European countries saw their prospects brighten, while some were dealt a blow with downgrades.

Fitch Ratings upgraded the outlook on Portugal's credit rating to 'positive' from 'negative' on Friday, citing the good progress the country has made in reducing the budget deficit. The ratings were affirmed at 'BB+'.

Elsewhere, Standard & Poor's raised the sovereign ratings of Lithuania as economic growth is expected to remain strong and external and fiscal performances exceeded expectations in 2013.

However, S&P downgraded the rating outlook on Finland to 'negative' from 'stable' on subpar growth prospects and affirmed 'AAA' rating.

Meanwhile, Moody's Investor Service lowered the outlook on Turkey's Baa3 bond rating to 'negative' from 'stable', citing the increased pressure on external financing position and uncertainty about economic growth outlook.

Portugal

Fitch said Portugal's stronger fiscal position is set to carry over into 2014 and puts it in a better position to achieve the 2014 fiscal deficit target of 4 percent of GDP.

The firm upgraded the 2014 growth projection for Portugal to 1.3 percent from 0.2 percent and the forecast for next year to 1.5 percent from 1 percent.

The bailed-out euro zone nation's fiscal financing conditions have improved markedly since Fitch's previous rating review in October 2013 and the sovereign has effectively regained market access, the agency said.

Despite the improved financing conditions, Fitch believes that securing a precautionary credit line would be beneficial in protecting against downside risks, although that is not the agency's expectation and not a key rating driver.

Lithuania

S&P expects Lithuania to fulfill all quantitative euro accession criteria and will be invited to join the Eurozone in 2015. Moreover, admission to euro area will improve the country's monetary flexibility.

Overall, Lithuania's institutional and governance effectiveness remains a credit strength. The rating agency anticipates no material change in government's policy agenda after presidential election in May.

Last week, Fitch upgraded Lithuania's outlook to 'positive' citing steps made towards meeting the necessary criteria for Eurozone accession in January 2015.

Finland

S&P said there are downside risks to Finland's growth and policy implementation. The downward revision also reflects average GDP per capita growth over the past decade of close to zero.

The average growth estimate for 2014-2016 was trimmed to 1 percent from 1.4 percent.

According to S&P, weak labor market conditions, an adverse demographic profile, and subdued investment activity will likely continue to hamper domestic demand. The agency sees risks to Finland's economic and fiscal performance.

Further, the moderate pace of policy implementation to address structural deficiencies might hinder the delivery of fiscal targets.

Turkey

Moody's said the adverse impact of the turbulent political dynamics and lower global liquidity exacerbated the existing external financing challenges. The tensions in the political arena is expected to persist until at least the second quarter of 2015.

Again, the heightened political risks constrain the momentum of structural reforms needed to reduce the economy's external vulnerabilities. The growth is forecast to slow to 2.5 percent in 2014 and 3 percent next year.

Others

S&P today affirmed Denmark's sovereign rating at 'AAA' and maintained 'stable' outlook. It said the nation has mature political and institutional frameworks that have promoted fiscal discipline and a moderate debt burden, as well as an open and prosperous economy.

Retaining the ratings of Serbia at 'BB-/B' with negative outlook, S&P said the outcome of general election in March has created a more favorable political environment in which to embark on overdue fiscal consolidation and structural reforms.

The rating of Belarus were retained at 'B-'. The S&P said ratings on Belarus were constrained by political risks, high government financing needs, and heavy reliance on external funding. The 'stable' outlook indicates expectation that the government will likely stick to its debt refinancing plan.