The Slovenia Times

Regional Insight in Association with S&P Global Ratings

Nekategorizirano

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CROATIA

On 15 January 2016, S&P Global Ratings affirmed its 'BB' long-term and 'B' short-term foreign and local currency sovereign credit ratings on the Republic of Croatia. The outlook remains negative.

The ratings are supported by slightly decreasing external debt due to deleveraging in the financial sector, which somewhat offsets that of the mounting public sector debt. We remain concerned about Croatia's public finances as the deficit has not been contained and general government debt, as a share of GDP, continues to increase. We continue to see the risk that the policy response and the momentum of reform could be insufficient to reverse the upward trajectory of debt. The ratings are constrained by Croatia's weak growth prospects and the public sector's dominant and inefficient role in the economy, due to a backlog of unimplemented structural and fiscal reforms.

We could lower the ratings if government policies do not robustly counter Croatia's entrenched fiscal and economic hurdles after the new government is formed, which we expect will take place this month. In addition, we could lower the ratings if we considered that the Croatian National Bank's effectiveness or credibility was being undermined if increased 'eurotisation' weakens its policy transmission mechanism.

ITALY

On 13 May 2016, S&P Global Ratings affirmed its unsolicited 'BBB-/A-3' long- and 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. 

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 http://www.standardandpoors.com/en_US/web/guest/regulatory/legal-disclaimers

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