The Slovenia Times

Slovenia's GDP to Shrink 1.9% in 2013


This will be the second consecutive contraction, after Slovenia's economy shrank by 2.3% in 2012. A similar forecast was also made by the Chamber of Commerce and Industry (GZS). The government macroeconomic think-thank expects the Slovenian economy could start seeing signs of recovery in 2014, when GDP could pick up by 0.2%, whereas a growth of 1.2% is expected in 2015.

Still, IMAD expects this year's contraction to further deteriorate the situation in the labour market, with the number of employees expected to drop both in the private and public sectors.

The number of unemployed could reach 123,500, up from 110,000 in 2012, and even over 124,000 in 2014. The registered unemployment rate in 2013 could thus reach 13.4%.

IMAD says there is a high risk that business activity will be even slower, depending on uncertainties on international markets and attempts to consolidate the public finance and restructure Slovenia's banking system.

Unfortunately, the situation in the international environment is deteriorating, said IMAD head BoĊĦtjan Vasle. Previously, slight growth was expected for the eurozone, however the most recent projections indicate a 0.3%-0.4% contraction.

He said the level of uncertainty on the international markets affected the yield on bonds of vulnerable countries, including Slovenia.

IMAD's forecast also takes into account two major assumptions related to Slovenia: further efforts to consolidate public finance and reduce public deficit as well as to stabilise the banking system.

If these efforts fail, the risks will escalate, Vasle warned at a press conference in Ljubljana only hours after the Statistics Office said that Slovenia's annual inflation dropped 0.7 percentage points to 2% in March.

IMAD expects only a slight increase in exports (1.2%) in 2013, while investments are expected to drop by 0.5% after several years of much steeper decline.

Growth of Slovenia's export will thus continue to lag behind rival exporters from eastern Europe such as the Czech Republic, Slovakia, Poland and Hungary.

Vasle believes the reason for this can be found in Slovenia's poor technological structure in exports and strong orientation to European markets.

The data also shows positive trends, as exports to fast-growing markets have doubled in the time of the crisis. However, exports to emerging markets only account for 17% of total exports. Moreover, the exports of technologically demanding products went up by 22% since 2008.

An expected slump in consumption will be a key factor in business activity, as private consumption will drop by 4%, while government spending will go down 2.9% this year, said Vasle.

Similar to IMAD, GZS predicts a 1.9% contraction of Slovenia's GDP in 2013. Next year, GDP could grow by 0.1%, GZS says, adding that measures to combat the crisis were delayed, too loose and not comprehensive enough.

"We continue to face poor business expectations, limited access to financing, as well as very low investment activity and an ever lower private consumption. At the same time there are no long-term strategies or real solutions to exit the crisis," GZS said in a press release.

There are many risks that could affect the projection, GZS said, listing poor access to funding, delayed payments, pressure for lower retail prices and pressure on the prices of raw material. Business activity may be even reduced by high taxes.

Other negative factors are Slovenia's poor credit ratings and delays in finding efficient measures to restructure banks, GZS said. Slovenia's GDP will also depend on whether the country will be able to launch big infrastructure projects, such as those planned in the energy sector.

GZS believes that consumer purchasing power will continue to drop: by 3.2% in 2013 and 1.7% in 2014. Exports are expected to increase by 2.6% in 2013 and by 4.2% the next year.

Salaries are to drop by 2.9% in real terms this year and 2.5% in 2014, GZS said. It expects annual inflation in 2013 to reach 2.3% and 1.9% in 2014.


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