Downgrades (english)

Simeon Djankov

Fitch Ratings published on Monday its latest rating review of emerging markets. The main news: Fitch expects advanced economies to contract by 0.8% in 2009, the largest decline since World War 2. The movers: downgrades for Bulgaria, Hungary, Kazakhstan and Romania; and downward outlook revisions for Chile, Korea, Malaysia, Mexico, Russia and South Africa.After some weeks of lumping together the East Europeans, finally some unbundling. Romania falls the most (in relative terms), from „BBB/BBB+/Negative Outlook“ to „BB+/BBB-/Negative Outlook.“ The reason: the current account deficit is expected to exceed 14% of GDP this year, with large foreign-currency mismatches in private sector and households’ balance sheets. Bulgaria is also downgraded, but only one notch – to „BBB-/BBB/Stable Outlook.“ The rationale on Bulgaria is an increased likelihood of a decline in foreign investment. On the positive side, the government’s net financial liabilities are virtually zero.The outlook revisions are more varied. Chile and Russia may suffer from lower commodity prices; Korea – as a result of the global fall in trade and reduced international credit; Mexico – as a consequence of the slowing US economy.In reading all this, let’s keep perspective: the ratings agencies are to blame for missing a lot of calls in the past year. One hopes they have done their homework this time around. Fitch Ratings published on Monday its latest rating review of emerging markets. The main news: Fitch expects advanced economies to contract by 0.8% in 2009, the largest decline since World War 2. The movers: downgrades for Bulgaria, Hungary, Kazakhstan and Romania; and downward outlook revisions for Chile, Korea, Malaysia, Mexico, Russia and South Africa.After some weeks of lumping together the East Europeans, finally some unbundling. Romania falls the most (in relative terms), from „BBB/BBB+/Negative Outlook“ to „BB+/BBB-/Negative Outlook.“ The reason: the current account deficit is expected to exceed 14% of GDP this year, with large foreign-currency mismatches in private sector and households’ balance sheets. Bulgaria is also downgraded, but only one notch – to „BBB-/BBB/Stable Outlook.“ The rationale on Bulgaria is an increased likelihood of a decline in foreign investment. On the positive side, the government’s net financial liabilities are virtually zero.The outlook revisions are more varied. Chile and Russia may suffer from lower commodity prices; Korea – as a result of the global fall in trade and reduced international credit; Mexico – as a consequence of the slowing US economy.In reading all this, let’s keep perspective: the ratings agencies are to blame for missing a lot of calls in the past year. One hopes they have done their homework this time around. Fitch Ratings published on Monday its latest rating review of emerging markets. The main news: Fitch expects advanced economies to contract by 0.8% in 2009, the largest decline since World War 2. The movers: downgrades for Bulgaria, Hungary, Kazakhstan and Romania; and downward outlook revisions for Chile, Korea, Malaysia, Mexico, Russia and South Africa.After some weeks of lumping together the East Europeans, finally some unbundling. Romania falls the most (in relative terms), from „BBB/BBB+/Negative Outlook“ to „BB+/BBB-/Negative Outlook.“ The reason: the current account deficit is expected to exceed 14% of GDP this year, with large foreign-currency mismatches in private sector and households’ balance sheets. Bulgaria is also downgraded, but only one notch – to „BBB-/BBB/Stable Outlook.“ The rationale on Bulgaria is an increased likelihood of a decline in foreign investment. On the positive side, the government’s net financial liabilities are virtually zero.The outlook revisions are more varied. Chile and Russia may suffer from lower commodity prices; Korea – as a result of the global fall in trade and reduced international credit; Mexico – as a consequence of the slowing US economy.In reading all this, let’s keep perspective: the ratings agencies are to blame for missing a lot of calls in the past year. One hopes they have done their homework this time around.