Category Archives: Slovakia

15/4/16: Slovakia v France: Risk Divergence

I love it when the good guys lead: "Slovakia leaps ahead of France, reveals country risk survey

Full article available here:

My full comment on the matter:

"From macroeconomic perspective the two economies appear to be heading in the opposite direction.

While France is experiencing weakening growth momentum with forecast real GDP growth rates for 2016-2017 at around 1.55 percent on average and declining (1H 2015 compared to current, a forecast swing of around 0.05 percentage points), Slovakian economy is gaining speed, with current forecast growth rate at around 3.57 percent for 2016-2017, representing an upgrade of around 0.3 percentage points.

Much of this is accounted for by differences in investment (rising in Slovakia, as a share of GDP, while relatively stagnant in France), as well as growth in exports of goods and services (with Slovakia expected to outperform France in terms of growth in exports in both 2016 and 2017 - a reversal on 2015 outrun).

In fiscal policy terms, both countries are expected to post modest reduction in total burden of Government in the economy, reflected in the declining ratio of Government revenues to GDP over 2016-2017. However, in France, this forecast is less certain due to political cycle and ongoing lack of progress on both structural reforms and fiscal targets. In contrast, Slovakia already runs relatively lean, strongly value-for-money focused public spending policies. As the result, even under relatively rosy projections, France will continue to post greater Government deficits than Slovakia through 2017. Crucially, even with negative Government yields on French debt, France is currently running deeper primary deficits than Slovakia, which suggests that the French fiscal space is much thinner than headline difference between the two countries suggest.

The above dynamics also point to continued divergence between the two countries' paths in terms of external balances. Slovakia's current account surplus in 2016-2017 is likely to average at around 0.15 percent of GDP. In contrast, France's current account deficit is expected to be around 0.37 percent of GDP.

In simple terms, diverging macroeconomic and political risks paths do warrant risk repricing in the case of both Slovakia (to the downside of risks) and France (to the upside in terms of risks assessment) into 2016, and possibly into 2017."

The risk trends are indeed showing counter-movement:

23/1/16: Poland’s Sovereign Risk Troubles

With what appears to be a political-motivated downgrade by the S&P on January, from A to BBB+, with steady outlook, Poland’s sovereign and macro risks have been pushed to the top of news flow. Meanwhile, Moody’s rates Poland A2 (stable) and Fitch A. However, as noted by Euromoney country risk recent assessment, the sovereign risks turmoil that accelerated over the last few weeks has been building up for some time now.

Euromoney Country Risk (ECR) survey shows that by the end of 2015, Poland’s political risk score dropped to 20.06, “the lowest it has been since ECR launched an updated methodology in 2011”. More interestingly, “Poland’s political risk score has been declining – indicating increased risk – since 2011.”

Worse, per ECR: “the drop in Poland’s political score from 20.17 in September to 20.06 in December combined with a fall in its economic risk score from 19.38 to 19.27 over the same period, contributing to a decline in its overall score to 65.62 from 66.93. Poland, which enjoyed a ranking as the 29th safest country in the world in September, dropped four spots in rankings since the yearend survey.

Here is ECR’s summary of scores for Poland, including some recent moves:

It is interesting to see Poland significantly underperforming Slovakia:

Overall, given that both Slovakia and Hungary have, over recent years, adopted a series of reforms that severely undercut effectiveness of institutional checks and balances over the power of the executive, the reaction of ratings agencies and European authorities to Poland following the same route suggests growing concern and nervousness in Europe over all and any national experimentation with populist and/or non-conformist (to EU 'standards') policies.

Not being a fan of the current Polish leadership, I find myself in Poland's corner: in a democratic setting, it is people, not Eurocrats, who should decide on their future institutions.