Thursday, June 30, 2022


Moody’s: Revises Euro Zone outlook to ‘negative’ from ‘stable’ for 2020

Moody’s carried out a revision of the outlook on sovereign debt issued by Eeuro zone member states to a ‘negative’ from a ‘stable’.
The house report, released Tuesday, refers to the ‘deteriorating global environment’ and estimates that euro zone economies are vulnerable to increased protectionism and geopolitical risks, with their ability to cope with economic disruption appear disrupted.
While the annual report is a market-driven move rather than a standard valuation exercise, Moody’s highlights some of the factors that increase the investment risk of debt in the euro zone economies in 2020.
Moody’s concludes that political fragmentation across a number of countries limits the reform momentum and will likely slow down the political response to domestic or external disturbances, while minority or multi-party coalitions will become the new rule and policies.
‘The negative outlook for the Euro zone reflects the limited capacity of its member states to respond to a deteriorating international environment,’ said Kathrin Muehlbronner, Moody’s senior vice president and co-author of the report.
‘The deteriorating global environment will burden the growth of member states in 2020, although strong domestic demand, monetary policy and some fiscal easing will moderate the impact.’
High public debt ratios are also expected to narrow the government’s fiscal margin for maneuver in the event of a sharp slowdown, as monetary policy is ‘nearing its depletion’, according to the report.
‘Many Euro zone countries – such as Belgium, Cyprus, France, Greece, Italy, Portugal and Spain – have public debt ratios of around 100% of GDP (or significantly higher in some cases), which is Unprecedented in recent decades and significantly limits their ability to use fiscal policy to mitigate the sharp slowdown in growth, ‘notes Moody’s report.
‘Debt to GDP ratios in France and Italy continued to rise last year, reaching 99% and 135% respectively.’
Complications in world trade are expected to continue to eliminate part of exports and growth, while Germany’s industrial weakness will shift to the rest of the Euro zone. Moody’s expects GDP growth of 1.2% in the Euro zone in 2020, against 1.1% in 2019.