The Slovenia Times

EU Downgrades Slovenia Forecast



In its Spring Forecast the Commission had projected a drop of 2% for this year and a moderate 0.1% decline in 2014.

The latest figures suggest Slovenia will be the only eurozone member alongside Cyprus whose economy will continue to contract next year.

This is in stark contrast to the projections for the eurozone as a whole, which is projected to grow at rates exceeding 1% in both 2014 and 2015.

The deficit projections are similar, as it is expected to hit 5.8% of GDP this year and climb to 7.1% next year before it comes down to 3.8% in 2015.

The projections mean Slovenia will miss its deficit targets set as part of the excessive deficit procedure.

Though public debt is well below the eurozone average, it is projected to surge to 70.1% of GDP in 2014 from 63.2% this year.

Unemployment, meanwhile, is projected to stand at 11.1% this year and rise by a further half a percentage point in 2014, though it will remain substantially below the eurozone average.

The forecast is based on figures showing that domestic demand is steadily declining on the back of rising unemployment and falling investment, which reflects the ongoing deleveraging process and tight financing conditions in the economy.

"In fact net exports are the only segment of economic activity that now contributes positively to growth, even though at a rather moderate pace," said Finance and Monetary Affairs Commissioner Olli Rehn.

Despite the bleak outlook, Rehn said Slovenia was "not necessarily heading towards an [aid] programme" provided it maintains the momentum and effectively implements structural reforms.

Rehn highlighted "rapid and effective" restructuring of the banking sector and financial system as "necessary for return of economic recovery".

This needs to be coupled with "timely implementation of the needed bold structural reforms" in order to ease financing conditions and support economic activity.

Similarly, Boštjan Vasle, the boss of the government's forecaster IMAD, said today that fiscal consolidation and bank restructuring were "the key conditions for kick-starting growth" given the tight financing conditions.

The Commission's GDP forecast is slightly more pessimistic than that of the Institute of Macroeconomic Analysis and Development (IMAD), which projects that the economy will contract by 2.4% this year and 0.8% in 2014 before returning to modest growth.

Central bank governor Boštjan Jazbec said the downward correction was not surprising and was in line with the projections of Banka Slovenije.

"At the beginning of next year we will probably have the most recapitalised banks in the EU and at the same time good conditions for economic growth. The question however is whether we will know how to make use of these conditions," Jazbec said, while noting that other measures to kick-start growth will also be essential.

Economic expert Jože P. Damijan was also not surprised by the downgrade. "A slight increase in exports cannot replace the lack in demand by households, the state and investment needs."

"Slovenia will be able to overcome the crisis if consumption increases strongly in the EU, which will trigger a hike in exports, and if consumption increases at home as well."


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