Eesti Pank (Central Bank of Estonia) is of the opinion that the today's report of Fitch Ratings rightly points out several risks related to the Baltic economies. At the same time, the three countries have different economic situations with signs of stabilisation appearing in Estonia.

"Our estimate is that the risk of economic overheating in Estonia is declining, although it is still there. According to the forecast, Estonia's economic growth is expected to slow to 8 per cent in 2007 and remain at a sustainable level of 7-8 per cent in the next years as well. Economic adjustment is supported by two demand-curbing factors: declining household credit growth due to rising interest rates deriving from increases in Euribor and stabilisation of real estate prices. Estonia's greatest strength is reliable banking sector and fiscal surplus, which exceeded 3 per cent of GDP in 2006 and has to remain within the same range this year. The main preconditions for a soft landing and economic competitiveness are wage moderation in the public and private sector as well as continuous productivity growth. These measures should keep Estonia's inflation rate within the limits forecasted by Eesti Pank and reduce risks deriving from the current account deficit," stated Mr Andres Sutt, Deputy Governor of Eesti Pank.

Sutt said euro adoption is the most important economic policy goal of the coming years. Changeover to the single currency will serve Estonia's best interests and has to take place at the first opportunity. The euro will decrease risks to Estonia's economy and boost the country's reliability in the eyes of foreign investors. So far, the main obstacle in Estonia's way to the single currency has been the higher-than-allowed inflation rate.

Today, Fitch Ratings published their report "Risks Rising in the Baltic States?" which analyses the economic situation in Estonia, Latvia, and Lithuania. The report concentrates on the Latvian economy, but highlights risks characteristic of all the three Baltic States. High growth accompanied by rising inflation, tightening labour markets, rapid credit growth, and double-digit current account deficit are pointed out as problematic factors. In 2006, Latvia's current account deficit and inflation rate were the highest in the EU, at 22 per cent and 6.6 per cent, respectively, Fitch notes.

The agency says that although the credit ratings of the Baltic States remain unchanged, the three economies are showing signs of overheating. Unless corrective policy measures are taken, it could lead to future negative rating actions.

However, Fitch admits that there exist several factors mitigating the negative pressures on the ratings. For example, all three Baltic countries have low public debt levels, and a very big share of the banking system assets are owned by strong foreign banks with good access to foreign currency. In addition, full coverage of the monetary base by foreign currency reserves weakens the prospect of speculative market attacks on the Baltic currencies.

The foreign currency Issuer Default ratings of Estonia, Latvia and Lithuania are 'A','A-' (A minus) and 'A', respectively, all with Stable Outlooks.