The Slovenia Times

Economy to Shrink by 1.2% This Year


The Institute of Macroeconomic Analysis and Development (IMAD) said in mid-March Slovenia's gross domestic product is expected to shrink by 0.9% this year following a 0.2% contraction in 2011.

The forecast came less than two months after it projected GDP growth of 0.2% for the year. The central bank forecasts are meanwhile due to be published in early April.

Kranjec told Delo consumer spending would decline this year, as would public spending and investment in fixed assets. Net exports are however expected to increase by something over one percent, Kranjec said.

Activity in the construction sector is set to continue to decline, but investment in equipment in the entire economy is increasing. "We have some early indications that a turnaround might occur in 2013," Kranjec said, adding central bank projections show GDP would begin to pick up again in 2013 and 2014.

Kranjec also touched on government-proposed spending cuts. "Slovenia has no alternative...the only question is how much," he said.

The government will be in a very difficult situation to balance spending cuts and measures to reignite economic growth, but it did a good job so far by quickly drafting a list of areas where cuts can be made, Kranjec believes.

He stressed the trade unions would need to play their part. "If we do not pull ourselves together, we might be facing a Greek scenario, where foreigners come in to dictate the measures. It is much better if we do this ourselves than if somebody from the outside forces measures on us," Kranjec said.

He believes the entire public sector will need to make what he says are short-term sacrifices. "All countries where aid packages were implemented...the public sector wages were reduced, this is nothing special," he said.

Asked whether the government should also work to increase tax revenues, Kranjec said one step could be to raise VAT by one percentage point. "Let us also not forget about moderate taxation of property such as real estate. All this will sooner or later come on the agenda," he said.

Kranjec does not believe there is a lack of credit in Slovenia. "Successful companies, there are quite a few, also small ones, have no problems getting loans," he said.

The problem are companies with poor capital structure, which are perpetually dependent on loans. "For such companies, the banks have assessed the risks were too high," he said.

After banks in Slovenia lost over EUR 360m in 2011, Kranjec expects banks to end 2012 in the red as well, but with smaller losses. "Banks will have to continue with impairments, although January data show that the volume of impairments is slowly beginning to stabilise and will probably shrink," he added.


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