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Slovenia Business Week no. 24: D&B Upgrades Slovenia's Risk Rating to DB2b

International rating firm Dun&Bradstreet has upgraded Slovenia's country risk rating one quartile to DB2b on the back of positive market reactions to Slovenia's impending eurozone entry and faster-than-expected GDP growth in the first quarter of this year

International rating firm Dun&Bradstreet has upgraded Slovenia's country risk rating one quartile to DB2b on the back of positive market reactions to Slovenia's impending eurozone entry and faster-than-expected GDP growth in the first quarter of this year.

In its supplemented June report, D&B says that preparations for the adoption of the single European currency are already well advanced. It believes that the final exchange rate will "almost certainly" be set at the central parity rate of SIT 239.64 per euro, which has been maintained over the past two years within the ERM II exchange rate mechanism.

Moreover, the openness of the Slovene economy is such that prices are already well aligned, so sharp increases in local prices are unlikely to accompany the introduction of the new currency. Indeed, D&B expects that the average rate of inflation will decline from 2.4% in 2006 to 2.0% in 2007.

The benign inflationary environment will support continued real GDP growth, which reached 5.1% y/y in Q1 2006, compared with 2.8% y/y in Q1 2005. This is in line with D&B's expectation that the pace of economic activity will quicken over the two-year forecast period.

However, the report also points out that the country needs to raise the low participation rate of just 31.2% for the 15-64 age group to help offset some of the worst effects of an ageing population: the World Bank estimates the dependency ratio will reach 87% by 2050.

Source: Slovene Press Agency STA

Author: STA