Fitch Ratings revised the Czech Republic's long-term credit outlook from stable to negative for the first time since 1998. The country has maintained or improved its credit rating from each of the Big Three agencies for the past 25 years and is currently AA rated.
Credit ratings assess the ability of a country or institution to repay its debt. The ratings have an impact on both the willingness of investors to provide loans, as well as the terms of those loans, such as interest rates.
A dip in the Czech Republic's credit rating would result in its debt becoming more expensive and lead to other economic factors, including increased inflation. A drop in the Czech Republic's credit rating could have severe impacts on an already-suffering economy.
The key factors in Fitch Rating's negative outlook are inflation, reliance on Russian oil, and reduction in economic growth. Inflation in the Czech Republic's surged to a 24-year-high of 12.7 percent year-on-year in the first quarter of 2022. Fitch Ratings projects inflation in the Czech Republic to continue to average 11.5 percent throughout 2022. Being cut off from Russian gas could greatly affect inflation rates and trigger a recession.
Prepared by the team of employees of CzechTrade Chicago.