Bulgaria and Estonia are some of Eastern Europe’s best positioned economies to survive the global financial and economic slowdown, foreign banking analysts said.

On March 10 2009, Moody’s said that European emerging markets should not be put on a par with each other in times of crisis. The credit rating agency grouped Bulgaria with Romania and Croatia, which it considers to have stable credit indicators but warned that their ratings might be changed.

Bulgaria’s biggest asset is the large fiscal reserve that would allow it to cushion possible blows as other countries reach out for help from abroad, said Timothy Ash, head of central Europe, Middle East and Africa research at Royal Bank of Scotland. He said that Estonia stands out from its neighbours with its extremely low public debt.

Ivailo Vesselinov, a Dresdner Kleinwort senior economist in London, said that Bulgaria also benefits from a low public debt, which speaks for 14.9 per cent of its gross domestic product (GDP). But he echoed Ash’s view that the country’s biggest advantage is the fiscal reserve as it enables the government to carry out countercyclical policy by its own means.

However, Vesselinov predicted the worst is yet to come for both Bulgaria and neighbouring Romania.

Ash forecast that with industrial production sinking all across Europe, dodging the recession would be a matter of luck.

Commenting on forecasts by the Bulgarian National Bank governor Ivan Iskrov that the inflation will slow to 2.5 per cent in 2009, Vesselinov said that a country’s entry into the Exchange Rate Mechanism 2 currency grid sends out a positive signal to investors as the European Central Bank can also run to the rescue if needed.

In the meantime, Bulgaria’s credit default swaps (CDS) slipped one point from March 6’s record of 699 basis points. London-based traders noted liquidity is currently much lower than in the summer, when CDS traded much cheaper. Despite the low liquidity, all analysts polled said CDS rates are a reliable indicator of what investors think of the economy.

Source: Dnevnik.bg