Seasonally and working-days adjusted, Slovenia's GDP contracted by 0.7% in Q4 on to the quarter before and by 1.5% year-on-year, while it grew by 0.2% last year, the office said in its first estimate on Wednesday.

The contraction in the last quarter follows a 0.5% reduction in the economic activity in real terms in the third quarter of 2011, with a recession defined as two consecutive quarters of negative growth.

"The rather pronounced fall in economic activity is the product of two factors," the press was told by Karmen Hren, who is responsible for national accounts at the Statistics Office; she pointed to external and domestic demand.

External demand continued to have a positive impact on economic growth, but the growth in exports slowed down to 3.0% year-on-year in Q4, which is significantly lower than growth rates in the second half of 2010 and first half of 2011.

"We had recorded growth rates even above 10% in some of the quarters at that period," Hren remembered, but given the situation in other EU countries she said the impact on the Slovenian economy was not surprising.

There was a marked contraction in domestic demand at a rate of 4.4% y/y in Q4 with all elements of domestic demand down: household and government spending (by -1.8% and 2.6%, respectively), and capital formation, which contracted by as much as 12.3%.

Value added decreased in most activities, dropping by 2.6% y/y in manufacturing, by 15.5% in construction and by 1.5% in trade, transport and catering. Value added only increased in the sector of non-market services (public administration, education, health, by 1.0%) and in real estate (0.5%).

Employment kept decreasing; it was down 1.7% compared to 2010, and nearly 6% compared to its peak in 2008, Hren said, noting that this was about 60,000 fewer jobs.

Since employment decreased, while GDP rose at least in nominal terms, this means that productivity increased, according to Hren.

Exports of goods and services grew by 6.8% last year, in fact enabling Slovenia to pull out of the first wave of recession, Hren said. Imports rose by 4.7%, while domestic spending was down 1.6% in 2011.

The deficit in transactions with abroad last year was 0.6% of GDP, which is about as much as in 2010, Hren said, adding that import prices increased more than export prices last year.

At current prices, GDP amounted to EUR 35.639bn, up 0.6% nominally on 2010. GDP per capita was EUR 17,361.

Commenting on the figures, the Institute of macroeconomic Analysis and Development (IMAD), said that the fall in final domestic consumption, coupled with the slow-down in growth in exports increases risks for growth this year.

The government think-tank noted that the 2.6% fall in government consumption was a result of fiscal austerity and the freeze on budget expenditure in the final months of last year.

"The deterioration in the international environment, the more then expected contraction in domestic economic activity at the end of last year and the announced fiscal consolidation increase risks for the economy to contract further this year," IMAD boss Boštjan Vasle noted.

Meanwhile, the Chamber of Commerce and Industry (GZS) pointed to the huge fall in investment in construction, which last year hit a 10-year low.

It called for measures to restart investment in this industry and urged companies to seek contracts outside the EU as exports remain the main of motor of growth.

Economists quizzed by the STA said the figures presented today had been expected, citing the country's failure to adopt structural reforms in 2011 as one of the main reasons for recession.

They also say that it will be hard to restart the economy, that there are no quick solutions and that the government's measures will only have effect in the mid- and long-term.

"Slovenia is uncompetitive due to absence of reforms (in particular of the pension, health and tax systems). With the prolonged credit crunch and lack of cheap money to stimulate demand, coupled with high labour costs, we're are doomed to a slow lagging behind the most successful EU countries," Aleš Ahčan says.

His colleague Rasto Ovin says the return to recession is primarily a reflection of the inappropriate way in which Slovenia's fast growth had been financed before the crisis. "As a result the deleveraging processes are now drawing capital out of investment."

There is also the succession of failed attempts at reforms last year, an impact of which was deterioration of borrowing terms abroad, so that even the relatively high growth in Slovenia's major export partner, Germany did not help, Ovin says.

The Dean of Ljubljana Faculty of Economics Dušan Mramor says that his projection of a double-dip recession is now becoming reality, a development shown by the models relevant to the structure of the Slovenian economy with the bulk of companies supplying final producers. Future trends will depend on economic policies.

Jože Damijan was somewhat surprised by the dramatic contraction in the final quarter, a development which suggests that Slovenia's economy is in a very bad shape even after the bursting of the construction bubble.

"Despite the positive economic growth in Germany and other major partners in 2010 and first half of 2011, Slovenian companies failed to fully capitalise on this positive demand. Even the companies that have orders cannot get financing even for working capital", which Damijan blames on tough crediting terms and over-leveraging.