Slovenia’s sovereign-credit grade was cut by Fitch Ratings, which cited a worsening economic outlook and a widening budget deficit as the eurozone nation battles to rescue its banking industry and avoid a bailout.
The long-term rating was lowered one level to “BBB+” from “A-,” on par with Ireland and Italy, Fitch said on Friday in an e-mailed statement from London.
The outlook was left at negative, meaning the ratings company is more likely to reduce its assessment further than leave it the same or raise it.
“The macroeconomic and fiscal outlook has deteriorated significantly since Fitch’s last rating review” in August last year, it wrote. “The agency now forecasts a 2 percent contraction in real GDP in 2013 and a decline of 0.3 percent in 2014, when Slovenia is expected to be one of only two eurozone economies to contract.”
Slovenia, struggling with its second recession since 2009, is working to fix its ailing banking industry with a 900 million euro (US$1.2 billion) capital boost and the creation of a so-called “bad bank” to cleanse lenders’ balance sheets and aid economic recovery.
Moody’s cut the country’s credit to junk last month, citing the government’s bill for the bank rescue.
Bond-market history indicates that the utility of sovereign ratings may be limited. The government is preparing to sell state-company stakes beginning in September to raise cash, Slovenian Finance Minister Uros Cufer said on Thursday in an interview.
The European Commission, the EU’s executive, will assess an economic-overhaul plan from the Adriatic nation this month.
The fiscal deficit will widen to 5 percent of GDP this year from 4 percent last year, Fitch predicted on Friday. That compares with a government goal of 2.8 percent.