Standard & Poor's Ratings Services has affirmed its A/A-1 long- and short-term sovereign credit ratings on Slovakia, saying that the ratings are supported by the country’s moderate government debt burden, healthy growth prospects, stable banking sector and low net external debt. On the other hand, the country's ratings are constrained by the high structural and youth unemployment and low labor activity rates and wealth levels, which still lag its eurozone peers.
The global ratings agency forecast the Slovak economy, which is highly dependent on auto production and exports, to grow by 0.6% this year, slowing down from 2% in 2012. It noted that there is evidence of a reorientation from traditional automobile exports to Europe, where sales have been volatile, to non-EU export destinations, which provides indication of economic resilience. S&P projects Slovak GDP growth to average nearly 2% over 2013-2016.
On the negative side, S&P noted that Slovakia’s unemployment rate has remained high at over 14%, with youth unemployment particularly high at 35% in 2012, the fourth highest in the EU after Greece, Spain, and Portugal. The agency expects that despite the decelerating growth and high jobless rate, the government will meet its target to cut the 2013 budget deficit to below EU’s ceiling of 3%. It warned, however, that while some unconventional consolidation measures, such as diverting pension contributions away from the second pillar and into the first, improve the budgetary position in the short term, they will reduce policy continuity and weaken the long-term sustainability of public finances. Other measures, like the changes in the labour code, the extraordinary levy on banks and utility companies, and the hike in the corporate income tax rate, have contributed to a higher uncertainty in the operating business environment.
S&P noted also that a decline in imports pushed Slovakia's current account into a surplus of 2.3% of GDP in 2012. It projected the current account surplus to narrow as domestic demand recovers and imports, including those related to investment, rebound, probably next year. The agency expects the economy's gross external debt to be 57% of current account receipts at end-2013.
S&P assigned a stable outlook to the ratings saying it expects the government to stabilise its debt burden through fiscal consolidation, the banking sector to remain stable, and the country's external indebtedness to remain low. Moreover, it projects Slovakia's growth prospects to be supported by investments in productive capacity, financed by private inflows and absorption of EU funds. The agency may upgrade the country’s ratings if its growth potential and faster convergence with eurozone wealth levels are supported by reforms to address supply-side constraints, such as in the labor market, and by improvements in policy effectiveness.
Evolution Equity Partners announced on 17 July the final closing of a new fund with total capital commitments of $125mn to make investments in cybersecurity and next generation enterprise software ... more
Slovakia’s grain harvest is this year likely to amount to 2.5mn tonnes, 20% down year on year, but comfortably enough to cover domestic needs and leave a million tonnes for export, SITA newswire ... more
Medium-term economic growth forecasts for Central Europe and the Baltics have been raised by The Vienna Institute for International Economic Studies (wiiw) in a report issued on June 29. The most ... more