Fitch comments on potential for rating upgrades in the eurozone periphery
- Some recovery in eurozone periphery sovereign ratings is possible in a benign scenario of economic recovery and declining debt ratios.
- Cutting budget deficits and stabilising then reducing public debt ratios would be a key driver of rating upgrades.
- Nevertheless, the agency is generally cautious about the medium-term outlook for the eurozone as many countries face a long period of convalescence and the risk of relapse; ratings could stagnate or even decline if growth is weak and debt ratios flat-line or keep rising.
- Believes that Ireland, Portugal and Spain have the greatest medium-term potential, in a favourable scenario, for multi-notch rating recoveries as their ratings fell further in the crisis (7-8 notches) than Italy and Slovenia (4-5 notches) and they have suffered less severe damage and are less exposed to downside risks than Cyprus and Greece (which defaulted and are still in EU/IMF programmes).
- Do not envisage any sovereigns in the eurozone periphery recapturing pre-crisis rating levels in the foreseeable future; This reflects not only the long and difficult adjustment path ahead, but also the legacy of the crisis.