2013-10-28 18:22:31 - New Country Reports research report from Business Monitor International is now available from Fast Market Research
Political instability will remain elevated as the four-party coalition attempts to push through harsh austerity measures that will very likely prompt parliamentary tensions and social unrest.
The short-term economic outlook has deteriorated sharply due to the deep banking sector crisis, forthcoming fiscal tightening and soaring unemployment.
Though the new government has been able to stave off the immediate threat of a bailout, this still remains a real possibility for 2014 if it is unable to implement its ambitious fiscal plan.
Major Forecast Changes
There have been no changes to our forecasts this quarter.
Key Risks To Outlook
Politics remains a key risk to the national reform programme, with the details of how to slash the budget deficit during a downturn likely to highlight differences between coalition
partners. Any sign that the reform programme is at risk of delay or suspension will have an immediate and punishing impact on market sentiment towards Slovenia, pushing the country closer to a bailout.
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A big risk to the Slovenian economy lies abroad. A major deterioration in the eurozone sovereign debt crisis, or even just a greaterthan- expected slowdown in the core eurozone nations, would have severe knock-on effects on the Slovenian economy, not only via depressed trade and investment flows, but also via credit channels and broader economic sentiment.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Dissent A Major Risk For 2014
- Despite Prime Minister Alenka Bratusek's early success in gaining consensus on key reforms from her four-party coalition, we expect the Slovenian government to face challenges by the end of 2013 and throughout 2014 owing to its fragmented nature. Dissent could occur with respect to the large-scale privatisation plan, but also to planned reform of the pension system. Tests for the government will come before the end of 2013 amid further fiscal reform, and throughout 2014 as politicians prepare for the upcoming local elections.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Economic Slump A Test For Stability
- Although the EU will remain a policy anchor for Slovenia over the long term, massive economic pressure will be a major test for the country's political institutions. A structural shift in policy and/or governing institutions is unlikely, though we caution that failure to develop a long-term growth model will raise challenges to governance, potentially exacerbating political party divisions.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
No Return To Growth In 2014
- Despite a more modest contraction of real GDP in Q213, Slovenia is not likely to see positive full-year growth before 2015. We forecast real GDP growth to contract 2.3% in 2013 and 0.2% in 2014, with risks to the downside as both government spending and private consumption suffer from the government's austerity drive. Uncertainty surrounding the stability of the banking sector will also hurt investment in 2013 and 2014.
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Current Account The One Bright Spot
- Slovenia's current account is set to remain in surplus through 2015 on the back of improving competitiveness and stronger demand from Germany, the country's main trading partner. The trend is likely to reverse in later years as Slovenian domestic demand regains momentum. Additionally, the income account is likely to start dragging down the current account from late 2015 as foreign investors taking part in the government's privatisation drive begin to cash in returns.
TABLE: CURRENT ACCOUNT
Prices To Stay High Despite The Downturn
- Inflation in Slovenia will remain relatively strong in H213, and we expect it to end the year at 2.3%. Inflation will remain supported by elevated commodity prices, to which Slovenia is highly sensitive, and tax hikes. However, economic deterioration in 2014 on the back of continued banking instability and the implementation of stringent austerity measures are likely to bring inflation down to 1.6% by end- 2014.
TABLE: MONETARY POLICY
Fiscal Risks Pile Up For 2014
- Despite a series of spending cuts and additional taxes planned by the government from 2013 and 2014 onward, we do not expect Slovenia to meet the European Commission 3.0% deficit ceiling before end-2016. We see further risks at the beginning of 2014, including potential for higher-than-expected capital injections for banks and a sizeable debt rollover.
TABLE: FISCAL POLICY
Capital Injection Cannot Come Soon Enough
- Despite the planned government recapitalisation of Slovenia's banking sector, the country's banks face an uphill battle to improve profitability amid sector deleveraging and consolidation. We forecast client loan growth to contract by 5.6% in 2013 and 2.1% in 2014, and caution that a sovereign bailout remains a possibility in 2014.
Chapter 3: 10-Year Forecast
The Slovenian Economy to 2022
Convergence To Slow Markedly
Full Table of Contents is available at:
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