The Slovenian economy grew by 0.5% in 2011, IMAD assessed in its winter forecast, which was presented to the government on Thursday. This is a downgrade of one percentage point compared to the government's think-tank's autumn forecast.

Since the autumn forecast, the expectations regarding international economic activity have significantly deteriorated, loans are becoming increasingly expensive for an increasing number of eurozone countries, while countries and businesses have problems obtaining financing, the institute explained.

The latest data for Slovenia show economic growth slowing down more quickly that expected in the second half of 2011, which is why IMAD has drawn up a new projection for the 2011-2013 period.

The slowing of growth is a result of slower growth of exports, which will also pull down the growth of investments. After a 7.3% growth last year, exports are expected to rise only by 2.9% this year, while gross investments in capital assets are to stay level after decreasing by little more than 10%.

Such developments will have a negative impact on the labour market and household spending. Registered unemployment rate will rise from last year's 11.8% to 12.8% in the next two years. The number of unemployed will rise in construction, manufacturing, retail and transport, while employment will rise in the services sector.

Inflation is not expected to exceed 1.8% in the next couple of years. Considering all these circumstances, wages will not be able to grow significantly.

The projected 2% growth of GDP in 2013 will be powered by demand on the domestic market and export demand. After four years of decrease, household spending will pick up again on the wings of more business investments and realisation of construction projects which have been delayed due to crisis.

IMAD warns, however, that these projections depend on the situation on the international markets, which can further deteriorate. Meanwhile, the trust of international financial markets could be restored through successful public financial consolidation and reforms.

But IMAD's forecasts are deemed too optimistic by the Chamber of Commerce and Industry (GZS), which based on a survey among 500 companies expects the economy to contract.

Last February, the GZS projected the economy to grow at a rate of 1.7% in 2011, while IMAD forecast the rate to be 2.5%, which then served as a basis for the 2011 state budget.

GZS downgraded its forecast to 1.2% in the autumn, while a supplementary budget drawn up in September was based on IMAD's projection of a 1.7% growth, although the proposal was not adopted.

"Our estimates were more pessimistic solely on the account of investment; we predicted a drastic fall as it was clear there would be no state investment," GZS said.

It warned that government expenditure had been planed on unrealistic expectations about revenues, which led "not only to an increase in the shortfall, but even worse, to unpaid government bills".

The GZS makes similar projections for 2012, predicting a 1% contraction in the country's GDP with exports growing at a rate of 2.9% and imports at 2.2%; and pointing to a negative impact of falling stocks.