Cyprus is included among Fitch Ratings’ Positive Outlooks in its latest Non-Rating Action Commentary on Western European sovereigns. Despite expectations of moderate growth across the region, fiscal performance remains highly heterogeneous, according to the report.

Fitch notes that the neutral outlook for Western European sovereigns reflects a combination of moderate growth prospects, a strong labor market, and lower interest rates. However, growth faces significant challenges, including potential trade restrictions, which may complicate fiscal policy adjustments, particularly in highly indebted countries.

The agency highlights that the growth outlook for 2025 hinges on a recovery in consumption and investment. Consumer demand is expected to rise as households spend their above-average savings, while accelerated absorption of NextGenerationEU funds and lower interest rates are anticipated to boost both public and private investment.

However, the region’s recovery could be hindered by persistent uncertainties, demographic challenges, or increased trade barriers following the U.S. elections. Higher tariff rates could have varying impacts across the region, with Germany being the most vulnerable among larger economies.

Fitch projects a continued decline in inflation, although core inflation is expected to remain above the headline rate due to ongoing pressure in the services sector. Monetary normalization by the European Central Bank and other regional central banks is also anticipated to continue through 2025.

Fiscal positions improved modestly in 2024, a trend expected to persist into 2025. Sovereigns will need to balance rising expenditure demands, such as increased defense spending, with the need to reduce deficits that remain significantly above pre-pandemic levels in many countries.

The report underscores the maintenance of Positive Outlooks for Cyprus (BBB+), Italy (BBB), Portugal (A-), Spain (A-), and San Marino (BB). These ratings reflect progress in addressing long-standing macroeconomic and external imbalances and improving fiscal metrics in these countries.

In contrast, Belgium (AA-), Finland (AA+), and France (AA-) are on Negative Outlook due to deteriorating fiscal positions, challenging debt dynamics, and policy uncertainty, according to Fitch.