RIGA — Moody’s credit ratings agency has raised the outlook for all three Baltic countries as they gradually crawl out of their debilitating recession and appear poised to resume growth.

Moody’s Investors Services raised the outlook for all three countries from negative to stable, reversing the downgrades prescribed last year.

Estonia fared best, as its A1 is the only investment-grade rating among the three. Moody’s lauded the government’s budget policies, particularly the 1.7 percent deficit recorded last year, and its chances to join the eurozone in 2011.

“Given the economic circumstances, and the relative fiscal performance compared to the current eurozone members, it will be very difficult for anyone to argue against Estonia’s entry,” Kenneth Orchard, a Moody’s agency vice-president, said.

Moody’s noted that after two years of contraction Estonia’s economy emerged from recession in the fourth quarter of 2009.

The agency praised Lithuania for the “relatively rapid stabilization” of its economy, which it said was the fastest among the three Baltic nations.

“This development is expected to have a modestly positive impact on government financial strength through slightly lower budget deficits and less rapid increase in debt,” Moody’s said in a statement.

It also pointed out that Lithuania was one of the few EU countries that did not need to intervene to prop up its financial sector. Still, challenges remain.

“The government’s budget deficit remains high, which will cause debt to continue to increase,” Moody’s said in a statement. Latvia, which with an 18 percent fall in GDP last year had the worst economy in the EU, has passed the worst of the recession, Moody’s said.

“In addition, the prospect of a disorderly currency devaluation is now highly unlikely, reducing the country’s susceptibility to event risk from ‘high’ to ‘medium’ according to Moody’s sovereign rating methodology,” Orchard said.

The agency said that while growth was forecast to resume in the second half of the year a “sharp rebound” was not expected to materialize after the drastic bursting of the property bubble.

“Although cost and competitiveness indicators show that the government’s strategy of maintaining the currency peg to the euro is holding, allowing an ‘internal devaluation’ to occur, the process still has much further to go before it can be deemed an unqualified success,” the agency wrote.

Latvia’s key challenges will be reducing private sector debt burden and boosting competitiveness of domestic goods and services on international markets.

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