Moody’s affirms Czech Republic’s Aa3 ratings, stable outlook

Investing.com -- Moody’s Ratings has affirmed the Czech Republic’s Aa3 ratings and maintained a stable outlook, citing the country’s moderate government debt burden and strong debt affordability metrics.

The rating agency highlighted the Czech Republic’s high-quality institutions, policy effectiveness, and competitive economy that generates growing wealth levels. These strengths are balanced against modest long-term growth prospects, which are constrained by an aging population.

Moody’s projects a gradual increase in the debt ratio from 43.3% of GDP in 2024 to nearly 50% by 2034. This rise will primarily stem from fiscal deficits projected to average 2.2% of GDP, influenced by plans to increase defense spending to 3% of GDP by 2030 from about 2% currently.

Despite this slight weakening, the Czech Republic’s debt metrics will remain in line with similarly rated sovereign peers, according to Moody’s.

The stable outlook reflects balanced risks at the Aa3 level. While external headwinds pose challenges to economic strength, these are offset by strong private sector balance sheets and opportunities for the Czech economy to benefit from increased defense spending across Europe.

Moody’s expects broad continuity in stability-oriented economic and fiscal policy-making regardless of the outcome of the general elections in early October, noting strong popular preference for fiscal prudence.

The rating agency forecasts real GDP growth to average 1.7% per year over the next decade, as rapid population aging and a shrinking working-age population impact the economy’s potential.

The Czech Republic’s local and foreign currency country ceilings remain unchanged at Aaa, reflecting limited government footprint in the economy and high reliability of government actions.

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