On April 7, Moody’s Investors Service changed the outlook on Slovakia’s rating from stable to positive and affirmed the A2 issuer and senior unsecured ratings. Moody’s decision reflects two drivers – Slovakia’s continued strong economic growth prospects in the coming years and the anticipated pick-up in the pace of public sector debt reduction, supported by robust growth and continued fiscal consolidation.
“Moody’s expects Slovakia’s positive growth momentum to continue in the coming years and to remain broad based – driven by both domestic and external demand – further supporting its robustness,” the rating agency writes on its website. Real GDP growth is expected to accelerate from a projected 3.3 percent in 2017 to 3.8 percent in 2018 and 4 percent in 2019, exceeding both the average for EU countries and A-rated peers.
Slovakia’s long-term local and foreign currency bond and bank deposit country ceilings remain unchanged at Aaa. Its short-term foreign currency bonds and bank deposit country ceilings also remain unchanged at Prime-1 (P-1).
“A new wave of investments in the automotive industry by Volkswagen (VW), Peugeot Citroen (PSA) and Jaguar Land Rover (JLR) from 2016-2020 is boosting private investment and increasing Slovakia’s export potential,” Moody’s writes.
At full capacity from 2018-2020, this investment is expected to increase Slovakia’s annual car production by to 1.5 million cars. Cumulatively, the new automotive capacities are expected to contribute close to 2.5 percentage points to real GDP growth from 2016-2020.
In addition, private consumption will contribute positively to growth over the outlook horizon, supported by a tightening labour market and real wage growth. At the same time, Moody’s expects the unemployment rate to decrease further.
“Moreover, Slovakia’s strong growth potential will lift the country’s income levels even closer to the euro area average, continuing the rapid convergence observed over the past decade,” writes Moody’s.
In terms of the declining public sector debt burden, Moody’s writes that the positive growth momentum is reflected in a rapidly narrowing fiscal deficit, with the authorities establishing a track record of fiscal consolidation in recent years.
“Since the sharp fiscal deterioration in 2009, when the fiscal deficit widened to -7.8 percent of GDP, the government has narrowed the fiscal deficit steadily to -2.7 percent of GDP in 2013 and an estimated -1.9 percent of GDP in 2016, the latter equivalent to budgeted forecasts,” Moody’s writes, adding that it expects the fiscal deficit to narrow further, reaching the government’s target of a balanced budget by 2020.
Response by Minister Kažimír
Finance Minister Peter Kažimír understands the assessment by Moody’s as praise not only for the government but also for the whole private business sector because such ratings influence the price of money, i.e. interest rates for private investors in Slovakia and companies who provide employment.
“Better assessment is good news and is nothing less than an assurance that we are on the right path,” said Kažimír as cited by the TASR newswire.
Moody’s is the third rating agency which places trust in Slovakia’s economy and its development. In January Standard and Poor’s confirmed an A+ rating for Slovakia with a stable outlook and in February Fitch Ratings confirmed the A+ rating and stable outlook.