EU Commission cuts growth forecast for Slovenia to 1.7%
This is the second time this year that the Commission has downgraded its outlook for the Slovenian economy, after reducing the growth projection for 2016 to 1.8% in the winter forecast issued in early February.
Having expanded by 2.2% in 2015, the Slovenian economy has faced an increasing number of questions about its performance for this year.
Almost all domestic and international forecasters have warned that a drop in investment activity stemming from reduced EU funding will slow growth, with rising household consumption and exports unable to make up the difference.
The switch from the old EU budget framework to the new one (for 2014-2020), which is expected to greatly reduce EU-backed investment, was cited by the government forecaster IMAD as a key reason for cutting its growth outlook by 0.6 percentage points to 1.7% in its forecast issued in mid-March.
Like IMAD, the European Commission expects economic activity to pick up pace again in 2017, when growth is expected to stand at 2.3%. This is on par with its February projection.
The more robust growth is expected to be a result of a continued decrease in unemployment, which should fuel a rise in household spending.
Unemployment is expected to drop to 8.6% this year, before falling to 8.1% next year, the Commission said in its report, upgrading its previous outlook, which saw unemployment stand at 8.8% this year and 8.4% next year.
The Commission has retained its government deficit projection for this year at 2.4% of GDP, while slightly downgrading the forecast for next year to 2.1% of GDP (from 1.9% in the winter forecast).
This is still broadly compliant with Slovenia's goal of keeping the deficit below 3% of GDP as part of efforts to close ongoing EU excessive deficit proceedings against it.
Despite forecasting a somewhat higher deficit next year, the Commission expects Slovenia's public debt to drop at a faster rate that previously projected: from 80.2% of GDP this year to 78% next year. In the winter forecast, it saw the debt falling to 79.5% of GDP next year.
The EU forecast also sees Slovenia experiencing another year of deflation, with consumer prices this year expected to be down 0.2 percent on average. Inflation is expected to return next year, when prices are projected to grow by 1.6%.