GDP in Slovenia continues to contract as credit extension by banks remains impeded due to poor asset quality, the report says.

The EBRD also points out that the Slovenian government failed to attract an investor to the state-owned NLB bank, emphasising that a "recently introduced temporary recapitalisation measure will need to put on a more permanent footing by the end of the year".

The fiscal consolidation package adopted by the new government will continue to weigh on domestic demand. Exports remain weak given recessions trading partners, in particular in Italy. Nevertheless, the new government managed to reach an agreement with key unions which should bode well for further reforms, the report concludes.

According to EBRD analyst Alexander Lehmann, Slovenia's recovery will depend on the health of its banking sector. Fixing the banks, so that they can begin lending again, is key to economic growth in Slovenia, Lehmann told business daily Finance.