Our comprehensive assessment of Slovenia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Slovenia, as well as the latest industry developments that could impact Slovenia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Slovenia before your competitors.

Country Risk

Slovenia Country Risk

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Core Views

  • The short-term economic outlook has improved in light of accelerating regional economic activity and a slight rebound in domestic demand.

  • The corporate sector remains overleveraged and will remain a major risk to the banking sector - unless ultimately some form of restructuring takes place, whether on the loans itself to reduce debt servicing costs, or through cost cutting (shedding jobs/trimming investment).

Major Forecast Changes

  • We have upgraded our forecasts for real GDP growth in 2015 on the back of stronger than expected exports, and early indications that household consumption is finally recovering.

Risks To Outlook

  • Politics remains a key risk to the national reform...

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Slovenia Operational Risk Coverage (9)

Slovenia Operational Risk

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BMI View: Slovenia presents some of the lowest operational risks by regional standards, given its few security threats, transparent market-oriented economy, and limited barriers to entry for foreign investors. Although the restricted access to credit, small size of the domestic market and high utilities costs detract from its overall appeal, these risks are not substantial enough to hinder Slovenia's position as one of the most attractive emerging markets in Europe. Consequently, the country receives an overall score of 68.3 out of 100 in BMI 's Operational Risk Index, which places it third out of 29 states in the...

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Slovenia Crime & Security

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BMI View: Slovenia is a generally safe place for foreign business travellers, expatriates and tourists, and foreigners are not at higher risk of crime than Slovenian citizens. The main threats to foreigners are from petty crime and robbery rather than violence or indiscriminate acts of political violence. The risk of home-grown or international terrorist attacks is very low, and membership of the EU and NATO means that interstate security is guaranteed. This contributes to a regional and global outperformance in the BMI Crime and Security Index, with a score of 94.6 out of 100.

The main risks to foreign business travellers, expatriates and tourists are from relatively petty crimes such as pick-pocketing and bag snatching. According to a survey conducted by the Organisation for Economic Co-operation and Development (OECD), some 81% of Slovenians feel safe walking home late at night, which is...

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Slovenia Labour Market

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Slovenia's labour market supports the country's business environment due to its highly educated workforce and access to the labour pool of 27 European states. Reforms are currently underway at the tertiary level to address the skills shortage stemming from low graduation rates in science and engineering. However, high labour costs offer the most significant detraction to investing in Slovenia, and serve to depress its score of 59.6 out of 100 in the Labour Market Risk Index, placing it ninth out of 30 emerging European countries, in between Lithuania and Latvia, and 42 nd globally, just above Saudi Arabia.

Solid labour availability boosts Slovenia's overall position in the Labour Market Risks Index. Its regional outperformance in this category is underlined by a sizeable labour force with strong basic skills. In addition, female labour participation rates are high by regional standards, which expand the talent and size of Slovenia'...

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Slovenia Logistics

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BMI View: Slovenia offers investors one of the most sophisticated logistics networks in the Emerging Europe region. Transport and utilities infrastructure is well developed, with roads, railways and ports offering good internal coverage and cross-border connections, and electricity, telecommunications and water widely available throughout the country. Low levels of bureaucracy also help to facilitate international trade. The key risks investors stem from a lack of diversification in freight modes and high utilities costs, which will increase overheads. Nevertheless, Slovenia's extensive logistics network is a major attraction for investors, and consequently the country is ranked third out of 29 Emerging Europe states in the overall BMI Logistics...

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Slovenia Trade & Investment

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Slovenia faces few trade and investment risks for investors due to its relatively open economy and harmonization of EU regulations. The major risks to trade are posed by the lack of available credit in the banking sector and underdeveloped capital markets. However, the government offers attractive financial incentives to certain industries. In addition, stable institutions and low levels of corruption help to further mitigate these risks. Slovenia's outperformance across the three pillars in the Trade and Investment Risk Index is reflected by its overall score of 70.9 out of 100, placing it fifth regionally after the Estonia, Lithuania, Hungary, and Cyprus and 18th th out of 170 countries worldwide.

Slovenia is a relatively open country for economic activity, due to its market-oriented economy and tariff-free access to the markets of its 26 EU peers. However, risk to investors is posed by the absence of a formal FDI strategy and...

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Slovenia Industry Coverage (14)

Autos

Slovenia Autos

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The Slovenian auto production sector looks set for strong recovery in 2015, following five consecutive years of decline. H114 figures also showed a decline, of 9.8% to 48,826 units, according to figures from the International Organization of Motor Vehicle Manufacturers (OICA). Passenger cars (48,778 units) accounted for virtually all Slovenian production over the January-June 2014 period. Given the poor start to the year, this means that we are still targeting a slight decline (of 1.8%) for 2014.

However, over H214, the outlook for domestic auto production has improved significantly. In November, we revised up our 2015 production growth forecast from 8%, to 28%. This followed the news that Slovenia's main automotive producer, Revoz, was starting a third shift at its Novo Mesto plant, starting December 2014.

Revoz - which is wholly owned by French manufacturer Renault -...

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Commercial Banking

Slovenia Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Slovenia Defence & Security

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BMI View: Defence expenditure as a proportion of GDP rose in the last decade, from 1.15% of GDP in 2000 to 1.6% of GDP in 2010. However, it has declined since, and we estimate defence of 1.2% in 2014, although we do see a rise to 1.3% in 2015. This is well below the NATO European average of 2.2% and below the 2% target that NATO specifies for its members.

Borut Pahor, Slovenia's president, insisted in October 2014 that the country would make no further cuts to military expenditure in the coming years. The government has made pledges to this end to stabilise defence spending levels. Slovenia needs to address both defence spending levels and military modernisation.

We expect Slovenia to spend around USD576mn on defence in 2015, a fall from our estimate of USD589mn in 2014. By 2019 we expect the Slovenian defence budget to be worth USD672mn.

We have...

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Food & Drink

Slovenia Food & Drink

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BMI view: After two consecutive years of contraction, the Slovenian food and drink market recorded modest growth in 2014. While we expect the positive trends in the Slovenian economy to persist over the coming years, the recovery will be slow and modest. As a result, we forecast weak growth in the Slovenian food and drink market with sales figures accelerating towards the second half of our forecast period.

Headline Industry Data

  • Food consumption (local currency) growth (year-on-year, y-o-y) in 2015: +0.4%; compound annual growth rate (CAGR) 2014-2019: +1.0%.

  • Per capita food consumption (local currency) growth (y-o-y) in 2015: +0.2%; CAGR 2014-2019: +0.9%.

  • Alcoholic drinks value (local currency) sales growth (y-o-y) in 2015: 0.0%; CAGR 2014-...

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Freight Transport

Slovenia Freight Transport

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We anticipate year-on-year (y-o-y) improvements across the board in the Slovenian freight transport mix in 2015, which mirrors the upgraded growth estimate and forecast for the economy as a whole in 2014 and 2015 respectively. This growth will be built on the back of stronger than expected exports, as well as early indications that household consumption is finally recovering. Nonetheless, a considerable corporate debt overhang and government austerity plans will cap the overall pace of real GDP growth.

The Slovenian freight sector will certainly be buoyed going forward by stronger than expected exports in the first half of 2014, which bodes well for tonnage handled across the freight modes in 2015. With that in mind, the outperformer in terms of y-o-y growth is set to be the country's smallest mode by output, the air freight sector (5.69%), while the rail and road modes are both set to record steady growth over the next 12 months (4.40% and 4...

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Information Technology

Slovenia Information Technology

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BMI View: Rebounding from slow growth, BMI believes Slovenia's IT market will see strong growth over 2015-2019 with CAGR of 3.2% over the period. In particular, Slovenia offers tablet and cloud computing as particular areas of growth. Enterprises in the country have shown willingness to take advantage of the cost savings offered by cloud computing and the country's proximity to major data centre hubs offers great potential for growth. Consumers, recovering from the country's downturn, are returning to spending on new devices, upgrading and buying additional computing devices.

Headline Expenditure Projections

Computer Hardware Sales: EUR341mn in 2014 to EUR345mn in 2015, an increase...

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Infrastructure

Slovenia Infrastructure

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BMI View: The fortunes of the Slovenian construction industry have finally taken a positive turn after five years of contraction. According to 9M14 construction indicators from the Statistical Office of the Republic of Slovenia, the construction sector grew 40% year-on-year. We're forecasting the Slovenian economy will have moved out of recession in 2014 to post 2.0% growth. We've accordingly adjusted our 2014 and 2015 industry figures upwards; however, we remain relatively cautious as growth - economic and industrial - in 2014 can be largely attributed to the very low base of 2013. Nonetheless, we're more optimistic than we have been for the last few years and believe infrastructure will settle into a modest, if restrained, growth pattern from 2015, thanks largely to EU energy and transport funding.

As for the infrastructure subsector mix, there will be very little change in dominance over our forecast period to 2024...

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Insurance

Slovenia Insurance

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BMI View: We have a positiveoutlook for Slovenia's overall insurance sector over the 2015-2019 forecast period, confirming overall growth of gross premiums in both the life and non-life segments. Importantly, both segments will exhibit declines in written premiums in 2015 and 2016, as the sector is pressured by intensive competition among existing players and increasing claims. However, from 2017, we anticipate ongoing premiums growth resulting from several key drivers, including changes in the country's demographic structure and healthcare reforms initiated by the Slovenian government. Accordingly, opportunities for future investment will mainly be present in particular sub-segments of the sector.

Slovenia's overall insurance industry is set to experience rather sluggish growth throughout the next five years. The market is characterised by aggressive price competition among the incumbent...

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Medical Devices

Slovenia Medical Devices

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BMI Industry View: The Slovenian medical device market is expected to grow by just 0.6% per annum to 2018, but a struggling economy and political instability, not to mention allegations of corruption and division within the healthcare system, could further affect funding and spending patterns in the short to medium term.

Headline Industry Forecasts

  • The medical equipment market is small, constrained by the country's small size. It is, however, one of the richest markets in the European region when viewed on a per capita basis. In US dollar terms, the market is expected to increase by a CAGR of just 0.6%, which should see it rise from an estimated USD294.3mn in 2013 to USD302.6mn in 2018. By product area, CAGR...

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Oil & Gas

Slovenia Oil & Gas

Pharmaceuticals & Healthcare

Slovenia Pharmaceuticals & Healthcare

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BMI View: Our updated forecasts for Slovenia's pharmaceutical and healthcare expenditure indicate a rebound this year from a decline trend that was seen over the past three years. Admittedly, this is true in local currency terms, while the value in USD is expected to take a significant hit, especially in pharmaceutical sales.

Headline Expenditure Projections

  • Pharmaceuticals: EUR704mn (USD943mn) in 2014 to EUR714mn (USD893mn) in 2015; 1.5% in local currency terms and -5.4% in US dollar terms. Forecast unchanged from previous quarter.

  • Healthcare: EUR3.0bn (USD4.0bn) in 2014 to EUR3.1bn (USD3.9bn) in 2015; 3.2% in local currency terms and -3.7% in US dollar terms. Forecast unchanged from previous quarter....

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Retail

Slovenia Retail

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BMI View : The Slovenian retail market is set to post a slow but stable growth rate over the forecast period amidst the public reforms and high market maturity. The decline of euro against dollar will make non-EU imports less competitive, however, the European retail chains and consumer goods producers will benefit from a mature and increasingly sophisticated Slovenian retail market. Total household spending will rise by 1.3% in euro terms in 2015 and will accelerate slowly to reach almost USD30bn in 2019 as the country and euro zone will be exiting a prolonged recession.

The retailers in Slovenia have been benefiting from the improving economic climate recently. After the country faced three parliamentary elections in 2013-2014, more stability and optimism is visible among the Slovenians. Consumer confidence has been...

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Telecommunications

Slovenia Telecommunications

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BMI View: Slovenia's fairly small size and population has led to the market becoming saturated quickly, with minimal levels of growth throughout the sector. The continued dominant position of state-owned Telekom Slovenije has also stunted overall growth and investment in the market. With limited subscriber growth opportunities, we expect to see increased levels of M&A activity, as consolidation of smaller players by larger companies plays out over the next few years. For such a small market, there are too many active players, none of which can properly challenge Telekom Slovenije. This has led to bankruptcy procedures at T-2 as well as Tusmobil becoming an acquisition target Telemach and Telekom Austria. The privatisation of Telekom Slovenije expected to be sold by February 2014,...

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Tourism

Slovenia Tourism

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The Slovenian tourism industry is benefiting from 2013's record growth in revenues, and this is set to continue into 2014 on the back of the continuing domestic economic recovery and the stabilisation of the wider region, which contains Slovenia's key tourism source markets. We expect the focus on mountain retreats, health resorts and spas to continue. However, we believe more-high end developments are needed to attract the larger hotel groups, which continue to have a very limited presence in the country.

Leading indicators suggest that Slovenia is now in the early stages of economic recovery. Improvements in retail consumption have also likely been supported by concomitant improvements in wage growth, in turn encouraging spending on tourist holidays, both domestically and internationally. We expect rising wages and consumer spending to encourage domestic and outbound tourism for Slovenia over the longer term.

Inbound...

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