S&P raises Slovenia’s long-term rating to A+

By bne IntelliNews June 18, 2017

Standard & Poor’s (S&P) Global Ratings said on June 16 it has raised its long-term foreign and local currency sovereign credit ratings on Slovenia to A+ from A. At the same time, the rating agency affirmed Slovenia’s A-1 short-term sovereign credit ratings. The outlook is stable.

S&P took the rating actions in the expectation that Slovenia’s net general government debt will fall below 60% of GDP by end-2018 on the back of stronger economic growth. Meanwhile, strong domestic demand and sound export growth underpin Slovenia's economic expansion and the recovery of its financial sector, which, according to S&P, will gradually improve credit conditions and support further investment and growth.

“The upgrade reflects our expectation that net general government debt will fall below 60% by the end of 2018. This is based on our assumption that the Slovenian economy will continue on its robust growth trajectory in 2017 and following years, as domestic demand continues to soar with rising employment lifting disposable incomes and investments picking up,” S&P said. 

“At the same time, export growth remains sturdy, due to buoyant demand from European trading partners. Slovenia benefits from its integration into the eurozone's core supply chains in a number of key industries, such as automotive, pharmaceuticals, and electrical equipment,” the agency added. Meanwhile, contained budget deficits and strong nominal GDP growth will contribute to decreasing net general government debt further from 62% in 2016.

S&P expects Slovenia’s general government deficit will remain at around 1% on average in 2017-2020, in contrast to the government's forecast of a slight surplus by 2019.

Slovenia’s general government deficit for 2016 was revised to €733mn, equal to 1.8% of GDP, the Statistical Office announced on April 20, well below the 3% of GDP as required by the EU. The European Council closed the Excessive Deficit Procedure (EDP) for Slovenia last year, as the country brought its budget deficit below 3% of GDP in 2015 for the first time since 2008. 

Slovenia started 2017 with stable foreign trade growth after its exports rose 4% y/y to €24.9bn in 2016, while imports were up 3.3% to €24.06bn. The export-import ratio was 103.5% and the external trade surplus amounted to €838.6mn. In 2015, when Slovenia’s external trade surplus amounted to €750.7mn. The export-import ratio in 2015 was 103.2%. The trade surplus increased further in 2016.

On June 16, S&P improved its projections for Slovenia’s GDP growth based on the good results achieved in Q1.

In the first quarter of 2017, Slovenia’s GDP increased by 5.3% in the first quarter of 2016. Seasonally adjusted GDP increased by 1.5% in the previous quarter and by 5% over the first quarter of 2016, statistical office announced on May 31. Slovenia’s economy expanded by a real 2.5% y/y in 2016 (according to the first estimate from the statistical office), slowing from 2.9% y/y in 2015.

“Accordingly, we revised upward our growth projections for 2017 and 2018 to 3.7% and 3.4%, respectively. This is driven by rising private consumption, due to sound employment growth and higher incomes. We also expect continued growth in investments to result in capacity expansion in Slovenia's export-oriented industry. We also believe that construction activity is recovering, no longer creating a drag on economic growth,” S&P said.

According to the rating agency, Slovenia's bright economic outlook and labor market conditions support the recovery of its financial sector, as non-performing loans continue to decline and appetite for lending returns.

The share of bad loans in the Slovenian banking system went down to 5.2% in March following a decline to 5.3% in February, after remaining at 5.8% in January and December, the Slovenian central bank said on May 24.

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