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Slovenia Country Risk Report Q2 2016

Slovenia Country Risk Report Q2 2016

Core Views The short-term economic outlook has improved in light of accelerating regional economic activity and a slight rebound in domestic demand. The corporate sector remains overleveraged and will remain a major risk to the banking sector – unless ultimately some form of restructuring takes place, whether on the loans itself to reduce debt servicing costs, or through cost-cutting (shedding jobs/trimming investment). Major Forecast Changes We have revised our 2016 current account surplus forecast from 7.3% to 7.9% as a result of our Oil & Gas team's recent downgrades to the Brent crude price forecast. We forecast Brent crude to average USD40.0/bbl in 2016, from USD53.6/bbl in 2015, which we estimate will result in a net saving of around EUR270mn.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth To Remain Dependent On External Demand
Slovenian real GDP growth should maintain its momentum in 2016. The recovery will remain heavily dependent on external demand as
the primary driver of growth but a gradual recovery in household consumption may develop too.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment
Oil To Further Boost Trade Surplus
Falling oil prices will help to increase Slovenia's already large current account surplus. Although the surplus in part reflects the weak
state of domestic demand, it will help to reduce the large negative net international position accrued across the last decade.
TABLE: CURRENT ACCOUNT
Outlook On External Position
TABLE: TOP 5 IMPORTS & EXPORTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
Monetary Policy
Energy Prices Will Stoke Deflationary Pressure
Although deflationary pressure will prevail throughout the first half of 2016 due to low global oil prices, we remain relatively sanguine
towards the medium-term inflation outlook.
TABLE: MONETARY POLICY
Monetary Policy Framework
Fiscal And Public Debt Outlook
Debt Load Vulnerable To Weak Growth
A sustained period of fiscal consolidation lies ahead as the Slovenian authorities attempt to place the public debt level on a more
sustainable trajectory.
TABLE: FISCAL POLICY
Structural Fiscal Position
TABLE: GOVERNMENT REVENUE/SPENDING SOURCES
Chapter 2: 10-Year Forecast
The Slovenian Economy To 2025
Convergence To Slow Markedly
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. While continued capital market and trade integration
with the eurozone following the adoption of the euro in 2007 will remain a core factor underpinning productivity gains, we caution that
reduced foreign capital flows resulting from the 2008-2009 financial crisis and domestic banking sector woes will stem trend growth over
the long term.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Migrant Crisis Remains At Forefront Of Political Agenda
We have downgraded Slovenia's Short-Term Political Risk score as the regional profile has deteriorated slightly. The European
migrant crisis will remain at the forefront of the political agenda for the foreseeable future, although the absence of popular support for
eurosceptic or nationalist parties suggests that the country's political environment is at a lower risk of extremism compared to other
countries.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Tepid Economic Outlook A Test For Stability
Although the EU will remain a policy anchor for Slovenia over the long term, massive economic pressures 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 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Trade Procedures And Governance
TABLE: EMERGING EUROPE – TRADE PROCEDURES AND GOVERNANCE RISKS
TABLE: IMPORT AND EXPORT DOCUMENT REQUIREMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Tail Risks Mounting Amid Sub-Par Growth
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%)
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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