Slovenia Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	64
ISBN Number	1744-8832
Product Code	BMI03514

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Summary

Uncertainty Spikes On Credit Crisis, New Government

Slovenia will be no exception to the global recession, and we have revised our macroeconomic and political risk forecasts to take into account expectations of a sharp slowdown in domestic economic activity. Not only do we expect real GDP to contract, but unemployment and the fiscal deficit will also concurrently spike. The news is not all bad however. As a result of the deleveraging process that is expected to underpin the recession, we expect Slovenia's current account deficit to fall while inflation too, should decline significantly.

We have lowered Slovenia's short-term political risk rating to 74.2 to reflect the country's worsening macroeconomic outlook and the expectations for heightened socio-political instability. In particular, with unemployment forecast to rise to 10.0%, the probability of public demonstrations and dissatisfaction with the government is likely to rise. Concomitantly, the potential for coalition disagreement over the appropriate fiscal response will also increase, elevating the potential for reversals in the policy agenda and changes in the government's composition.

In line with downward revisions to our eurozone economic growth forecast, we now expect the Slovene economy to contract by a real 1.7% in 2009. While we expect a recovery back into positive territory by 2010, we caution that trend growth is likely to settle below 3.2%, well below the 2002- 2007 average of 4.7%. Moreover, we caution that despite our revision, the risks remain firmly to the downside. While we have factored in a eurozone contraction of 2.5% into our Slovenian forecasts, should this prove to be optimistic, we would expect Slovenia to be commensurately affected.

The Slovenian government will guarantee bonds issued by Slovenian banks under a new EUR12bn scheme designed to ensure banking system liquidity and capital adequacy. On February 12, the country's largest bank Nova Ljubljanska Banka became the first to announce plans to take part in the scheme. The plan should lower borrowing costs for the financial system, though we maintain that credit spreads across the economy are likely to remain high through 2009. Indeed, the spread of the benchmark 5-year Slovenian credit default swap hit a record 215bps on January 26, and we expect it to remain at historic highs for the medium term.

Content

Executive Summary
- Uncertainty Spikes On Credit Crisis, New Government
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Policy, Coalition and Social Stability Risks To Rise
- We have lowered Slovenia's short-term political risk rating to 74.2 to reflect the country's worsening macroeconomic
- outlook and the expectations for heightened socio-political instability.
- Foreign Policy
- Croatia Dispute To Remain Key Foreign Policy Issue
- We expect Slovenia's maritime border dispute with Croatia to remain at the forefront of the country's foreign policy
- agenda through 2009.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Introduction
- Economic Activity
- Recession Ahead
- In line with downward revisions to our eurozone economic growth forecast, we now expect the Slovene economy to
- contract by a real 1.7% in 2009.
- Balance Of Payments
- Current Account Deficit To Contract
- While we estimate the Slovenian current account deficit to have widened substantially in 2008 to 5.1% of GDP, we
- believe that this will be the peak, and forecast a steady decline over the long term.
- Monetary Policy
- Risks of Deflation As Recession Hits
- We forecast Slovenian inflation to fall to a multi-year low of 1.0% y-o-y by end-2009, driven down by a combination of
- weakening domestic demand and further declines in global commodity prices.
Chapter 3: 10-Year Forecast
- The Slovenian Economy To 2018
- Convergence To Continue But At A Slower Pace
- We expect Slovenia's real macroeconomic convergence with the Western European developed states to continue
- through our 10-year forecast period, though at a far reduced pace to the decade leading up to 2007.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine
- to spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Oil & Gas
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- Table: Political Overview
- Table: ECONOMIC ACTIVITY
- Table: BALANCE OF PAYMENTS (Euro)
- Table: MONETARY POLICY
- Table: SLOVENIA Long-Term Macroeconomic Forecasts
- Table: Banks' Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Eurozone Is Considered 'Home Country'
- Table: Exposure As % of Total Exposure To Region
- Table: Banks' Foreign Exposure (US$ mn)
- Table: Exposure As % of National GDP
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Europe, FDI Annual Inflows
- Table: BMI TRADE RATINGS
- Table: Top Export Destinations
- Table: Slovenia Oil & Gas - Historical data & Forecasts
- Table: Global Assumptions
- Table: GLOB AL AND REGION AL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets, Real GDP Growth Forecasts
- Table: DEVELO PED MARKE T EXCHANGE RATES
- Table: EME RGING MARKE T EXCHANGE RATES