Low GDP per capita relative to the EU average constrains upward sovereign rating momentum for these countries, according to a report by Fitch.

“Structural reforms could allow CEE-5 countries to generate autonomous momentum to improve medium-term growth prospects and spur real income convergence,” it said, referring to Poland, Hungary, the Czech Republic, Romania and Bulgaria.

It recommends that reforms should cover an array of sectors, including public healthcare, pension systems, the labour market, innovation and SOEs.

Fitch believes that Poland is best placed to enjoy a recovery, followed by Romania, Bulgaria and the Czech Republic. Hungary trails the other countries.

Fitch forecasts that average-weighted GDP growth in the five main Eastern European economies, in the EU but outside the euro-zone, will rise to 1per cent in 2013, following an estimated 0.6 per cent growth in 2012.

Domestic demand is unlikely to lead the economic recovery in the CEE-5 in 2013. EU funds could boost public investment, although the factors that have held back EU fund absorption to date are likely to continue to hinder faster absorption.

Conversely, Fitch believes that fiscal consolidation is largely complete in the CEE-5 and little additional fiscal tightening will be needed from 2013. The average general government deficit in the CEE-5 was an estimated 2.9 per cent of GDP in 2012, below the Maastricht threshold of 3 per cent.

The agency believes that there is little fiscal space in most CEE-5 countries to absorb a severe external shock.

Beyond 2013, CEE-5 growth prospects appear brighter, provided recovery takes hold in the euro-zone, investment picks up and countries engage in greater structural reforms.