Slovenia Business Forecast Report Q1 2013

Executive Summary
Core Views
Major Forecast Changes
Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestics Politics
Referendum Call Threatens Rating
A referendum call on government reform packages will threaten Slovenia's credit rating as well as their prospects for economic recovery
in 2013 If the plans are rejected deeper fiscal austerity, minimal domestic demand and the spectre of a bailout means continued
negative GDP growth will be all but a certainty
TABLE: POLITICAL OVERVIEW
Long-Term Politics
Political Challenges Amid Economic Slowdown
Slovenia will continue to enjoy broad-based political stability over the long term The country's high level of domestic institutional
development and full integration with all major Euro-Atlantic institutions including NATO, the EU, eurozone and Schengen Agreement
will continue to mitigate major political risks The likelihood of a structural shift in policy and/or governing institutions is highly unlikely
Nevertheless, we caution that a slowdown in economic growth over the long term will raise challenges to governance, potentially
exacerbating political party divisions ahead of election cycles

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Poor Q212 Growth Heralds GDP Downgrade
The most recent data released by the Statistical Office of the Republic of Slovenia has shown a sharp decline in all components of real
GDP growth in the second quarter of 2012, with y-o-y growth sinking to -3 2% The outlook for the Slovenian economy in 2012 and
is decidedly moribund, with continuing fiscal austerity negatively affecting on private consumption and a threat to the country's sovereign
credit rating, contributing to downward pressure on consumer and investor confidence
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Low Imports Masks Long-Term Weakness
In regard to ongoing economic malaise in Slovenia we are forecasting a current account surplus this year of EUR 0 43bn on the back
of weak import demand; however exports are set to continue declining in the face of falling demand from key trading partners This
downward trend is likely to continue with our forecast for the current account to flip into deficit by 2015
TABLE: CURRENT ACCOUNT
Monetary Policy
Inflation To Continue Heading Lower In 2013
Slovenian consumer price inflation fell to 2 7% y-o-y in October after spiking at 3 3% in September and we forecast the rate to fall to
a revised expectation of 2 4% by the year-end This view is supported by our negative growth predictions for 2012, falling oil and gas
prices and public sector reforms that are all likely to drive inflation down
Fiscal Policy
Bank Bailout Still Likely
We maintain that Slovenia will need an emergency bailout given the dire state of the domestic banking sector We also forecast the
government to miss its fiscal deficit target of 2 9% of GDP in 2013 and forecast the deficit at 3 4% of GDP following a 4 3% shortfall in
2012
TABLE: FISCAL POLICY
TABLE: SELECTED FINANCIAL RATIOS FOR MAJOR TURKISH & POLISH BANKS
Regional Banking Sector
Regional Banking: Turkey To Continue Outperforming
At the bottom of the pile in terms of risks, though, are Ukraine and Kazakhstan In Ukraine's case, our expectations for hryvnia
devaluation and slowing economic growth point to systemic risks within the sector, given high levels of foreign exchange exposure (see
'Assessing Devaluation Shocks On Domestic Banks', September 26) As for Kazakhstan, the country's banks are yet to recover from
the catastrophic losses experienced back in 2008/09, and are unlikely to do so any time soon, as issues over credit quality (the IMF
estimated that Kazakhstan's non-performing loan ratio stood at 31 9% in March 2012) are exacerbated by the weaker growth outlook
Key Sector Outlook
Attractive Opportunities In Emerging Europe Agribusiness
We are bullish towards Eastern European agribusiness over the coming years and expect Russia, Ukraine, Kazakhstan and Romania to
become increasingly important players in global agribusiness We view fertiliser and machinery companies as the most compelling way
to play it That said, business environments will need to improve and agribusiness infrastructure be upgraded in order for the region to
capitalise fully on its potential

Chapter 3: 10-Year Forecast
The Slovenian Economy To 2021
Convergence To Slow Markedly
We expect Slovenia's real macroeconomic convergence with Western European states to continue through our 10-year forecast period,
but at a far reduced pace compared with the decade leading up to 2008
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
TABLE: TOP EXPORT DESTINATIONS
Operational Risk

Chapter 5: Key Sectors
Oil & Gas
TABLE: SLOVENIA OIL & GAS – HISTORICAL DATA AND FORECASTS, 2009-2016
Retail
TABLE: RETAIL SALES INDICATORS, 2009-2016
Other Key Sectors
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TABLE: TELECOMS SECTOR KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
Mixed Signals For The New Year
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 49