(Adds more quotes, background, context)
LONDON, Aug 28 (Reuters) - Ratings agency Fitch, delivering
a grim overview of emerging Europe on Thursday, said the global
slowdown, inflation pressures and fragile financing conditions
would weigh on the region's credit and economic outlooks.
Countries spanning from Russia to the Czech Republic have
seen a downshift in growth, and in some cases a sharp braking,
as the euro zone flirts with recession and credit tightening and
other factors squeeze domestic demand.
High commodity prices have also fuelled inflation when many
states are facing capacity constraints, which Fitch said
increased the risk of exchange rate and banking crises.
The uncertainty has been compounded by political uncertainty
prompted by the conflict between Russia and Georgia this month,
and Fitch said in a report that previous upward ratings momentum
across emerging Europe had stalled.
"The economic and credit outlook for emerging Europe is
deteriorating as an unpalatable combination of a downturn in the
euro area, maturing domestic booms and the global commodity
price shock presages a worse growth/inflation/current
account trade-off across the region," Edward Parker, head of
emerging Europe sovereigns at Fitch, said in a note.
He said the risk of a hard landing accompanied by an
exchange rate crisis in the region was significant and rising,
although this was not the rating agency's central scenario.
GROWTH HIT
Estonia expects its once speeding economy to go into reverse
this year, shrinking by 1 percent after a booming 7.1 percent
growth in 2007 and 11.2 percent in 2006.
Latvia is also teetering on the brink of recession, while
more stable economies like the Czech Republic and Slovakia have
seen growth fall by several percentage points, mainly due to
orders drying up in Germany as the euro zone struggles.
Fitch sees the region's GDP growth falling to 5.8 percent
this year and 5.3 percent next year from 6.9 percent in 2007.
It would be bolstered by expected growth in Russia of 7.5
percent this year and 6.5 percent in 2009, but Fitch said: "Most
countries within the region will grow much slower".
It is these worries that have sent some currencies lower.
After months of testing new highs this summer, the Czech crown
<EURCZK>, Polish zloty <EURPLN=> and Hungarian forint <EURHUF=>
are down between 4 and 7 percent from their records.
Inflation is high across the region especially in the
Baltics -- it hit 16.7 percent in Latvia, 12.2 in Lithuania and
11.1 in Estonia in July -- raising the risk of exchange rate and
banking crises and reducing debt tolerance, Fitch said.
Fitch has cut the outlooks of the Baltic states, Bulgaria
and Romania, to negative from stable, and it said those
countries, plus Croatia and Turkey, remained most vulnerable.
It also said the credit crunch could trigger a fall in
funding for banks in Emerging Europe, while the war in Georgia
had added another layer of political risk, although it did not
expect it to cause rate changes in any of the countries for now.
"However, this is not impossible should events (in Georgia)
lead to a marked reduction in FDI and other capital inflows,
seriously disrupt trade and economic activity, heighten domestic
political instability or heat up other post-Soviet frozen
conflicts," Fitch said.
(Reporting by Jeremy Gaunt and Michael Winfrey; Editing by
Gerrard Raven)
