The Slovenia Times

Brussels Forecasts 2.3% GDP Drop for Slovenia in 2012


In May the Commission forecast a 1.4% GDP contraction in 2012 followed by 0.7% growth in 2013, while the Institute for Macroeconomic Analysis and Development (IMAD), a government think tank, projected in September a 2% contraction for 2012 and a 1.4% decline for 2013.

The Commission's outlook for Slovenia's GDP in 2012 puts the country only ahead of Greece (-6%) and Portugal (-3%) in the eurozone and on par with Italy and Cyprus; only Greece and Cyprus have a worse forecast for 2013.

Slovenia is not doing so well when it comes to public finances either. While the Commission projected a 4.3% general government deficit for 2012 and a 3.8% deficit for 2013 in May, it has downgraded the forecast to 4.4% and 3.9% of GDP respectively.

The deficit it to rise to 4.1% in 2014. If Slovenia does not bring the deficit below 3% in 2013, it could face sanctions.

Commenting on the report, the Finance Ministry said the government was "determined to bring the budget deficit below 3% of GDP in the next two years".

It acknowledged that the pace of fiscal consolidation had been wound down in the 2013 and 2014 budget bills, but said this was to secure incentives for economic growth.

"The government wants to create conditions for faster growth in the shortest time possible," the Finance Ministry's press release reads.

Slovenia's public debt is growing steadily as well. Although it is still substantially below the eurozone average and below the 65% GDP threshold defined in EU rules, the debt level increased to 54% this year. The Commission expects a further rise to 59% next year and to 62.3% in 2014.

The ministry said the government was aware of the current debt growth, which is why its activities are "directed towards making sure the debt does not exceed the frameworks determined in European rules."

The outlook for unemployment, where Slovenia is faring better than the eurozone on average, is also deteriorating. The Commission expects the unemployment rate to rise to 8.5% this year, 9.3% in 2013 and 9.6% in 2014.

Inflation in Slovenia is expected to be slightly above or on par with eurozone average in 2012 and in the coming years. The Commission forecast 2.8% inflation for this year, 2.2% in 2013 and 1.6% in 2014.

EU Commissioner for Economic and Monetary Affairs Olli Rehn commented on the forecast for the press, saying the discrepancy with forecasts in Slovenia was the result of the Commission not sharing the optimism of the government regarding the sharp increase in investments resulting from expected improvements in the phasing of EU funds.

But Rehn expressed support for the plans of the Slovenian government for the fixing of the banking sector. Central bank Banka Slovenije and the government should work hand-in-hand with the goal of strengthening the sector in line with the May recommendations of the Commission, he said.

The Commission recommended an independent evaluation of bad claims, capital increases and purging banks' balance sheet of bad loans. Some progress was noted in the first two categories, while the government is also proposing to rid the banking sector of EUR 4bn-worth of bad loans.

The commissioner stressed that similar measures were also adopted by other EU members states, including the United Kingdom and Germany.


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