S&P affirms Slovakia’s A/A-1 ratings, raises outlook to positive

By bne IntelliNews August 4, 2014

Standard & Poor's said it has revised to positive from stable its outlook on Slovakia and affirmed its A/A-1 long- and short-term sovereign credit ratings on the country.

The outlook revision is a result of the rating agency’s view that the country’s fiscal consolidation efforts will be boosted by broader economic growth which will reduce its reliance on unconventional one-off measures. The positive outlook indicates a one-in-three probability that the agency will raise the ratings over the next two years if Slovakia's fiscal and economic measures outperform expectations.

The ratings are supported by the country's moderate government debt, the robust economic growth prospects, and the low net external debt. However, S&P believes these strengths are mitigated by economic challenges including high structural and youth unemployment, as well as low labour activity rates and income levels, which still lag its Eurozone peers.

The rating agency sees domestic demand, which has started to strengthen at the end of last year, to continue its growth in 2014- 2017, resulting in an average annual GDP growth of 2.8% over this period. S&P also projected an annual average inflation in the country of 0.3 for this year, in line with the disinflationary trend in the eurozone.

However, the country’s outlook could be revised back to stable if the general government net debt levels rise above current expectations or if GDP growth underperforms estimations.

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