Slovenia Times

Regional Insight in association with S&P
Italy
On 13 May 2016, S&P Global Ratings
affirmed its unsolicited ‘BBB-/A-3’ longand
short-term sovereign credit ratings
on the Republic of Italy. The outlook
for the long-term rating is stable.
Our ratings on Italy are supported by the
country’s wealthy and diversified economy and
its external position. The ratings also reflect
our opinion that the government is gradually
implementing several important structural
reforms to the education system, the labor
market, the banking sector and the electoral
system, as well as to the operations of the
Senate. The ratings on Italy are constrained by
weaknesses we see in Italy’s real and nominal
GDP performance and eroded competitiveness,
which are undermining the sustainability of its
public finance position.
The stable outlook reflects our expectation
that the Italian government will continue
to implement wide-ranging and potentially
growth-enhancing structural and budgetary
reforms that will stabilise, and start reducing,
the very high public debt ratio.
Romania
On 8 April 2016, S&P Global
Ratings affirmed its ‘BBB-/A-3’ long
and short-term foreign and local
currency sovereign credit ratings on
Romania. The outlook is stable.
The ratings are supported by Romania’s moderate
external and fiscal debt amid reasonably
firm growth prospects. The ratings are constrained
by low GDP per capita (estimated at
US$9,300 in 2016) relative to its peers, alongside
pro-cyclical fiscal policy and Romania’s
weak governance framework, although we note
important efforts have been made to reduce
corruption in recent years.
The stable outlook reflects the balance between
the likelihood of Romania’s twin deficits
widening on the one hand, and its modest government
and external debt on the other.
Slovenia
On June 17, 2016, S&P Global Ratings
raised its long- and short-term foreign and
local currency sovereign credit ratings
on the Republic of Slovenia to 'A/A-1'
from 'A-/A-2'. The outlook is stable.
The upgrade reflects our expectation that
over 2016-2019:
• The general government debt-to-GDP ratio
will gradually fall as authorities reduce
government deficits and draw down on accumulated
deposit assets totaling 18% of
GDP in 2015;
• Tax-rich domestic demand will continue
its recovery, albeit at a slower pace than in
2015, contributing to ongoing budgetary
consolidation;
• Policymakers' measures to restrict expenditure
increases will complement efforts to
raise tax collection;
• Positive labor market outcomes, both in
terms of wage growth and job creation, will
persist and in turn support private consumption;
and
• Credit conditions will likely gradually ease
as the health of the banking and corporate
sectors improves over time.
In 2015, the Slovenian economy expanded
by 2.9% on strong export growth. Domestic
demand continued its recovery for a second
year in a row, growing by 2%. Employment
grew in 2014 and 2015 on average by 0.8%
and the unemployment rate reduced to 9% in
2015. The current account balance, driven by
growing trade and services surpluses, posted a
surplus for the fifth consecutive year. In 2016,
we expect real GDP growth will be lower at
1.7%. This is because public investment is likely
to contract this year, as the 2007-2013 EU
budget cycle has ended. However, we expect
private-sector activity to increasingly pick up
over 2016-2019. Eurostat data indicates that
capacity utilization was 83% as of March 31,
2016, among the highest levels since year-end
2008, signaling that investment needs will
likely pick up. We still view the monetary and
credit transmission mechanism in Slovenia
as challenged, despite the European Central
Bank's expansionary monetary stance. This is
particularly the case for small and medium enterprises
(SMEs), which, despite deleveraging,
remain on average more vulnerable than larger
corporates in the manufacturing segment. In
the interim, we believe internal cash generation,
debt issuance abroad by larger corporate
entities, and intercompany loans will finance
investment. We also note that, following years
of deleveraging, the corporate debt-to-GDP ratio
has reduced to below the euro area average,
indicating an improved ability of corporates to
invest. This should support labor market developments
over 2016-2019.
Sources: Standard & Poor’s Rating Services and Eurostat.
Please refer to our website for more information about ratings at https:
www.spratings.com/corporates/Understanding-Ratings-2.html
and read our disclaimers at
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Summer Edition 2016 | The Slovenian Times
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