Fitch Ratings projects limited fiscal improvement across European countries, citing uneven adjustments in debt reduction and growth trajectories.
However, the agency mentioned that Cyprus continues to stand out with a positive outlook.
In a report released this week, Fitch stated that Western Europe’s fiscal outlook remains neutral, reflecting moderate growth expectations supported by a robust labour market and easing interest rates.
However, challenges like potential trade barriers and persistent uncertainties could hinder policy adjustments, particularly in heavily indebted nations.
Fitch highlighted that Western Europe’s economic recovery by 2025 will depend on a rebound in consumption and investment.
Moreover, the agency said that household spending is expected to increase as savings above the historical average will continue to be utilised.
It added that stronger absorption of NextGenerationEU (NGEU) funds and lower interest rates are expected to bolster both public and private investments.
Nonetheless, potential disruptions, including trade barriers arising after the US elections, demographic challenges, and elevated tariffs, could derail recovery efforts.
Germany, among the larger economies, remains especially vulnerable, agency mentioned.
Inflation is expected to continue declining, although core inflation is projected to remain above headline levels due to persistent pressures in the services sector.
Furthermore, Fitch expects ongoing monetary normalisation by the European Central Bank (ECB) and other regional central banks through 2025.
The report also made note of modest improvements in fiscal positions for 2024, a trend likely to persist into 2025.
The agency also said that policymakers are expected to balance current spending demands, such as increased defence budgets, with the need to curb deficits that remain above pre-pandemic levels in many countries.
Cyprus, along with Italy, Portugal, Spain, and San Marino, maintains a positive outlook.
For Cyprus (rated BBB+), this reflects its continued progress in reducing macroeconomic and external imbalances and improving fiscal metrics, according to the agency.
Countries with consistent primary surpluses, such as Cyprus, Greece, Ireland, and Portugal, are set to rapidly reduce public debt-to-GDP ratios, supported by a commitment to prudent fiscal policies across political systems.
In contrast, Belgium (AA-), Finland (AA+), and France (AA-) face negative outlooks due to worsening fiscal positions, debt dynamics, and political uncertainty.
Fitch also underlined the growing disparity in fiscal performance among European nations, underscoring the complexity of achieving sustainable improvement.
Commenting on the report, government spokesman Konstantinos Letymbiotis said that this “is an irrefutable vote of confidence in the Cypriot economy, the government’s policies, and the collective efforts of the state and society, which are delivering tangible results”.
Letymbiotis also referenced the recent upgrade by Moody’s, which lifted Cyprus’ credit rating to ‘A3’, restoring the island to the ‘A’ grade for the first time since 2011.
The agency explained that Cyprus has “significantly reduced its public debt ratio since its peak in 2020 and ranks among the countries with the largest debt ratio reductions worldwide”.
“The continuous, successive upgrades of the Cypriot economy demonstrate its resilience and upward trajectory, elements that are essential for improving the daily lives of households and businesses,” Letymbiotis said.
“Cyprus’ upgrade creates a more favourable environment for households and businesses, boosting economic growth, reducing borrowing costs, and strengthening confidence in the country’s economic prospects,” he added.
He also said that “entrepreneurs and households can benefit from a more stable and favourable economic situation, with prospects for improved quality of life and more opportunities”.
In addition, the government spokesman siad that “through the upgrade of Cyprus’ credit rating, borrowing costs are reduced”.
“Our country is now considered more reliable for investors, which can lead to lower loan interest rates for households, whether for mortgages, consumer loans, or loans for small businesses,” he said.
He continued by stated that “households can thus benefit from more affordable financing for property purchases or other major investments”.
“By strengthening investor confidence and external business players, the chances of attracting more investments to Cyprus—both domestic and foreign—are increased, as the upgrade creates a sense of stability and long-term growth,” Letymbiotis said.
“This rise in competitiveness for our country means more job opportunities and higher earnings,” he added.
“On this steady path, we will continue to pursue responsible policies as a government,” Letymbiotis concluded.
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