ECR chart of the week: EU and CEE ECR scores en route to convergence over near decade

Matthew Turner
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Developed economies see rapid flux in risk score; emerging markets only moderate shifts, according to Euromoney Country Risk.

Fitch anticipates a gradual convergence between the ratings of developed and emerging sovereign issuers in 2013. It attributes this convergence to a downward pressure on developed markets’ sovereign creditworthiness rather than to improvements in emerging markets’ sovereign ratings. ECR data reveal this convergence has been happening for some time and was more acute during pre-crisis levels, perhaps when the rating agencies had their eye off the ball. A comparative snapshot of the ECR scores of Central and Eastern Europe (CEE) and the EU (excluding the CEE member states) shows that risk differentials between the two regions have narrowed by more than 24 ECR points. In 2004 – a year noted for EU accession – the average ECR score for the CEE region was a marked 38 points short of the EU average risk score. However, in December this differential narrowed to just 14 points – a 24 point differential. ECR data reveals that between September 2004 and September 2010, the average ECR score of the CEE region converged with the rest of the EU. However, this momentum was eventually cut short in 2010, after both scores correlated on a downward trend following the unravelling of the eurozone debt crisis and the wider impact this had on both regions.

This suggests the convergence Fitch anticipates might not be as clear-cut as first anticipated, judging from the multitude of factors that impact a sovereign credit rating and economic performance.