Slovak Rating Outlook Raised to Positive by S&P on GDP

Slovakia’s credit rating outlook was raised to positive from stable by Standard & Poor’s, which said accelerating economic growth will help the eastern European euro-region member to trim debt.

The change indicates a “one-in-three” chance of a rating upgrade within two years if the country’s fiscal and economic performance outperforms expectations, S&P said today in a statement from London. The ratings company kept Slovakia’s assessment at A, its sixth-highest grade and above fellow euro-area members Ireland and Italy.

Prime Minister Robert Fico’s government narrowed the budget deficit to within the European Union’s limit of 3 percent of economic output last year as improved tax collection and the introduction of special levies offset slowing growth. The fiscal measures have pushed the country’s borrowing costs to historical lows, with 10-year yields hovering around 1.9 percent.

“The outlook revision reflects our view that Slovakia’s fiscal consolidation will be aided by more-balanced economic growth--particularly a continuing strengthening of tax-rich domestic demand,” S&P analysts led by Aarti Sakhuja said in the statement. “We believe that the government will continue to target successively lower deficits over its remaining term to prevent a breach of its own debt rules.”

Slovakia’s gross domestic product, which rose 0.9 percent last year, will expand an average 2.8 percent in 2014-2017, driven by domestic demand, S&P predicts. Faster growth will fuel tax revenue and allow the government to rely less on one-time measures such as special taxes for selected industries, the ratings company said.

Global bond yields showed investors ignored 56 percent of Moody’s and 50 percent of S&P’s rating and outlook changes in 2012, more often disagreeing when the companies said governments were becoming safer or more risky, data compiled by Bloomberg show.

To contact the reporter on this story: Radoslav Tomek in Bratislava, Slovakia at rtomek@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net Andrew Langley

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