INTERNATIONAL rating agency Fitch has confirmed Slovakia’s long-term rating outlook as stable, the SITA newswire reported.
Fitch wrote that Slovakia’s export-oriented economy has been hit significantly by the drop in demand from western Europe, which will cause its GDP to fall by as much as 3 percent. Revitalisation of the economy is only expected in 2010, when GDP is expected to increase by 1 percent. However, Fitch said the shock caused by the economic downturn is within the tolerance of the current ratings.
The performance of the Slovak economy is linked to demand for long-term consumption products in western Europe. Therefore, Slovakia’s production of cars and electronics has dropped year-on-year to approximately half its previous level and unemployment is growing.
According to Fitch, Slovakia’s accession to the eurozone serves as a shelter from external financial and currency risks, which many of the neighbouring countries face today, SITA reported.
Thanks to the previous government’s reforms to the public pension system, Slovakia is in a much better position in terms of long-term costs connected with the ageing of the population than many other countries in the eurozone. However, if the government continues its present efforts to lower participation in the second, private pillar of the pension system, this advantage could be damaged, SITA reported Fitch as stating.
Another important factor for keeping the ratings at their present level is the evidence about fiscal discipline and economic stability. The current government has kept most of the reforms introduced by the previous government, but the upcoming parliamentary elections in 2010 and the deteriorating business environment present some political risk, reported SITA.