Slovenian Rating at Risk If Economy Slips, Fitch Says
Slovenia’s credit rating, the highest in east Europe, may be downgraded if the worst performing economy in the euro region deteriorates further, Fitch Ratings’ Chris Pryce said.
Debt of the former Yugoslav republic, the first among the former communist countries to adopt the common currency, is rated AA by Fitch and Standard & Poor’s, two levels below the highest grade, and Aa2 by Moody’s Investors Service.
Slovenia, like most eastern economies, outgrew its western peers earlier this decade and has been hurt by waning demand for goods and the outflow of capital. The Adriatic nation’s economy, where exports account for about two-thirds of output, shrank 9.3 percent in the second quarter and may slump 7.3 percent this year, the government’s economic institute forecasts.
“Slovenia is now highly rated, but clearly if the economy continues to deteriorate that rating will come under pressure,” said Pryce, director of sovereign and international public finance at Fitch in London, in a phone interview yesterday.
The SBI20 stock index declined for the first time in four days today, falling the most in more than a week. The 15-issue benchmark slid 0.8 percent to close at 4229.30 in Ljubljana, led by Zavarovalnica Triglav d.d., Slovenia’s largest insurer, which dropped 3 percent.
Crisis Measures
Slumping growth and a government economic stimulus program have hurt the budget, pushing the deficit beyond the European Union’s 3 percent of gross domestic product limit. The Cabinet on Sept. 29 presented a 2010 draft for next year with a gap of 5 percent of GDP, down from the 5.5 percent shortfall expected for this year. In 2008, the deficit was 1.8 percent.
The government of Prime Minister Borut Pahor will spend about 15 percent of GDP this year to stabilize the financial system and reignite growth, a program that includes the international sale of about 4 billion euros ($5 no teletrack payday loans.8 billion) of bonds, and a 1.2 billion-euro guarantee plan to help companies such as appliance maker Gorenje Group d.d., the second-biggest exporter after the nation’s Renault SA unit.
“The government deficit might even grow next year which would be worrying, and I think they should make a bigger effort to knock 1 or 2 percent off the deficit,” Pryce said. “I’d be happier to see the deficit approaching 4 percent than possibly rising to 6 percent or 7 percent, and this remains a possibility.”
External Demand
Given that Slovenia is small, open and in the euro region, the outlook for its economy will be driven primarily by developments in key export markets, said Neil Shearing, emerging markets economist at Capital Economics Ltd in London.
He expects Slovenian economic growth next year to be faster than others in the region.
“As for the rating, the key risk is a further sharp deterioration in the budget position,” Shearing said. “But all told, the risk of a downgrade is not as acute as elsewhere in the region.”
Slovenia has the highest GDP per capita among the Eastern members that joined the EU, at 18,367 euros at the end of last year, according to statistics data. GDP advanced at an average rate of 4.4 percent in the last decade.
The adoption of the EU’s common currency was “critically important” as Slovenia would be “in a much bigger hole” if it wasn’t a member of the euro region, Pryce said.
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