Ljubljana - The European Commission has forecast that Slovenia's economy would contract by 7.1% this year, roughly on par with its previous estimate. A rebound of 5.1% is expected in 2021, a percentage point lower than the forecast in July.

The economy is expected to return to pre-coronavirus levels in 2022, when GDP growth is estimated to be at 3.8%, according to the Commission's autumn report released on Thursday.

Job losses have been smaller than expected and the measures taken have avoided a surge in bankruptcies thanks to public policy measures, the commission says.

In 2021, employment is projected to increase slightly. The unemployment rate is forecast to fall to 4.8% after hitting 5% at the end of this year.

Due to low energy prices and weak demand, inflation is expected to be close to 0% in 2020, before rising to 0.9% in 2021. With the recovery setting in, the rise in consumer prices is expected to strengthen to 1.8% in 2022.

Much like elsewhere in the EU, Slovenia's public finances will deteriorate, with general government deficit projected to surge to 8.7% this year before dropping to 5.1% next year.

Public debt is projected to climb to 82.2% of GDP this year before declining to 80.2% in 2021 and 79.8% in 2022.

The sharp rise in expenditure is driven by the Covid-19 response measures, with a total budgetary impact 5.2% of GDP in 2020. The cost of mitigating the impact of the pandemic will continue to be felt in 2021.

Additionally, a significant increase in public investment is projected in 2021 and 2022, which can be partly attributed to the rollout of some of the projects to be financed by the Recovery and Resilience Facility, according to the report.

On the revenue side, taxes on production and imports are projected to fall sharply mainly due to a decline in private consumption expenditure.

Revenues from taxes on income and wealth and social security contributions are forecast to be less affected, as the effects of the crisis on the labour market and compensation of employees remain subdued.