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Slovenia: a country with a strong economic outlook which needs its Parliament to elect the Prime Minister

Overview:

Slovenia is a parliamentary republic of two million people, with the President being the head of state. The Prime Minister is a powerful figure in Slovenian politics, controlling the Cabinet. The incumbent Prime-Minister, Miro Cerar, has lost the June 2018 election, but remains in the office as a head of the caretaker government due to the long-lasting coalition talks. Mr. Cerar has previously resigned in March due to the High Court ruling regarding the railway referendum, which was the biggest political agenda for Cerar’s cabinet. Most of the parties have supported a railway construction, but details in the law caused an attention.

On August 10th, 2018, Fitch has affirmed Slovenia’s “A-“ ranking. Institutional strengths and a credible fiscal policy framework that come with the EU and eurozone membership support this ranking further. Real GDP growth is expected to be 4.4% in 2018 (5% in 2017) and its export sector continues to expand. Higher wages and positive near-term labour employment will continue boosting domestic demand. The down side is that domestic demand will trigger inflationary pressures, and net external debt remains high relative to peers (22.7% of GDP) in 2017.

On Friday the 17th Slovenia will face one of the most important Parliament voting in the last years, as the new Prime Minister is expected to take charge of the country – however, it is still a mystery who will succeed Mr. Cerar – or will the country face another round of general elections.

 

Undecided Elections:

On 3rd of June the elections were held, and the Eurosceptic and a former PM James Jansa has gained the most seats – 25. However, as the Slovenian Parliament consists of 90 Members, to choose the PM there is a majority required – at least 46 Members, resulting in Mr. Jansa failure to secure the results.

He was expected to form a Cabinet, but all the other major parties have refused to join negations due to his aggressive anti-immigrant rhetoric. Two months after the elections it is still not clear who will rule the Cabinet, with rumours being that Marjan Sarec, leading a party of his name – centre-left, social liberal, will be backed by 4 other parties to become the PM. Therefore, a coalition of LMS (13), SD (10), SMC (10), SAB (5) and DeSUS (5). However, even with the support of those 5 parties they would lack three votes to have a majority. Levica (9) – a socialist party – may join the coalition, but they remain indecisive so far.

On the graph below you can see the number of seats each political party got and the possible alliances, based on parties’ ideologies. 

Source: Banking Services Division research.

 

The new Parliament voting is expected on 17th of August, when it would finally become clear what is happening next. We may expect “hot” meetings in the coming days in Slovenia, with most of the population watching closely the Parliament gathering. It has been a precedent in other countries to call another election if the parties would not agree – or letting the current Prime Minister to stay in the office.

Source: Data from Bloomberg and Banking Services Division research.

 

Image 2 shows the impact of political instability on the performance of CDS (Credit Default Swap) since 2018 – we see the sudden increase in the middle of March, following the Prime Minister’s resignation, and further fluctuations as the future continues to be uncertain.

 

Privatisation:

Privatization is an important part of the agenda in Slovenia, as the government still controls the largest banks in the country NLB(1st.) and Abanka (3rd.), as well as +30 state-owned companies. As the European Bank for Reconstruction and Development suggests, privatisation will allow the economic growth to speed up further (GDP growth rate reached 5% in 2017) and it pushed for a quicker process as a part of a deal to bail out NLB several years ago. On 10th of August, the European Commission has approved the privatization of NLB, with simple majority to be performed before the end of 2018.

Privatizations are a hot topic in Slovenia for two reasons. The first is their post - Socialist past – and people show a degree of sympathy towards the state involvement in the economy, which is on Mr. Sarec’s (leader of LMS-Centre Left) agenda, the most likely candidate to become Prime Minister. The second reason is that Mr. Jansa’s (leader of SDS-Right) party, remaining the major player in the parliament, advocates for the free market in Slovenia, willing to speed up the privatisation process, however, he is expected to be cautious about foreign capital gaining control over strategic industries.

 

Final Remarks:

Overall, the country has a positive political history and a rising Macro Economic indicators, and its major challenge is its current political instability, and the results of the coalition talk will truly decide the direction the country will head. It either will continue with a typical EU-centre left agenda, or it will join the group of the populist governments (allying with Hungry and Trump) – specifically, being targeted by media because of its anti-immigrant stance.

Nevertheless, whoever becomes the Prime Minister, he or she will receive a good legacy from Miro Cerar, and the important task is to safeguard those promising ranking by not allowing country into a political chaos.

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