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Moody´s confirms Czech Republic´s A1 rating

The Moody's agency today confirmed the Czech Republic´s A1 rating with a stable outlook, which it said was mainly thanks to the Czech cabinet´s commitment to fiscal consolidation amidst unfavourable macroeconomic situation as well as due to a limited impact of Europe´s debt crisis.

Last year, the Czech government's continuing austerity measures reduced the general government deficit to 3.1 percent of gross domestic product (GDP). Further effort will, however, be difficult because the Czech economy has been weakening since the third quarter of 2011, Moody´s said.

For this year, Moody´s expects Czech GDP to fall by 0.6 percent and believes the Czech government will manage to cut the budget deficit to 2.9 percent of GDP in 2013.

"Contagion from the European debt crisis will remain contained," Moody´s said.

The banking system in the Czech Republic is very liquid and well capitalised, the agency noted.

According to Moody´s, the Czech Republic´s rating could be upgraded given that there was a significant improvement in the government's balance sheet through a major reduction of debt. Major structural reforms that would increase competitiveness and boost growth would also be assessed positively.

Moody´s would, on the other hand, downgrade the country´s rating if its debt increased and consolidation of the budget deficit was unsuccessful. A possible abolition of the pension reform would also be viewed negatively, the agency said.