Croatia and Poland are two countries in central and eastern Europe whose domestic political risks are reflected in the negative outlook on their credit ratings, Moody's credit ratings agency said in a press release on Wednesday.
"Our 2017 outlook for sovereign creditworthiness in the CEE region is mixed," said Evan Wohlmann, a Moody's assistant vice president , analyst and co-author of the report.
"Robust consumer spending and a recovery in EU funds will underpin robust growth rates for most countries in 2017-18, which is credit positive," Wohlmann explained.
"However, structural reforms securing healthy growth in the medium-term could be slowed by rising political - and hence policy - uncertainty in some CEE countries," he added.
Out of the eight countries in the region, four started 2017 with stable outlooks, two with negative outlooks and two with positive outlooks, the report says.
Seven out of the eight CEE countries are now rated investment grade for the first time since 2012, and Moody's notes that this this reflects the region's improved resilience to global economic challenges as a result of strong growth dynamics and relatively prudent fiscal starting positions.
The negative outlooks on the ratings of Poland and Croatia reflect the vulnerability of their fiscal and structural policies and ultimately their economies to rising domestic political risks, Moody's said.
CEE growth rates will remain between 2.5% and 3.5% for most countries in the region in 2017 and 2018, outperforming the EU and euro area as a whole, the report says.
Strong domestic demand will remain the key driver of economic growth across the region, supported by steady gains in household consumption together with an acceleration in investment from EU Structural and Cohesion funds, after a slump in 2016.
Moody's warns, however, that continued improvements in macroeconomic fundamentals are unlikely without reforms that address supply-side weaknesses and bottlenecks in the labour market, as well as in regulatory, judiciary and fiscal areas.