Today Fitch ratings has published a new report on Iceland´s sovereign ratings. Iceland´s Short-Term (ST) foreign- and local currency ratings are upgraded to F1+ from F1, in line with the agency´s publication from 3rd of May. Iceland´s Long-Term (LT) ratings are affirmed at A with stable outlooks. Iceland´s country ceiling was also raised from A to A+, due to the almost full lifting of capital controls.
As stated in Fitch´s press release, the collapse of Wow air as well as the current absence of fishable capelin stock in Icelandic waters, are among the factors that have led to a worsening economic outlook for 2019. However, the agency assumes that economic growth will return in 2020 and be positive by 2.5%. The announcement also points to the recent relative stability of the Icelandic krona despite the lifting of capital controls and Wow air´s collapse.
The main factors that could lead to a positive rating action are a continued fall in the public debt ratio, supported by prudent fiscal policy, and a sustained improvement in the external balance sheet and increased resilience of the economy to external shocks.
The main factors that could lead to a negative rating action are a sustained and sharper than expected economic downturn, impacting on the banking sector and leading to excessive capital outflows, jeopardising financial stability and weakening external buffers.
Fitch´s update (pdf)