The forecast is a huge improvement over the original projection in January of a 2% contraction, though it is still below the estimates of the OECD and the IMF (0.3%), the EU (0.8%), as well as the central bank (0.6%) and the government's forecaster IMAD (0.5%).

Only Croatia, whose economy is expected to contract by 0.5% this year, has a worse outlook according to the EBRD, whereas all other countries in the region are projected to grow faster.

The institution notes that the economy had recovered in the final quarter of 2013, but the entire picture for 2013 is nevertheless undermined by poor domestic spending, growing unemployment and constrained access to financing for companies.

In order to achieve a true turnaround, Slovenia must continue with bank restructuring and take action to reduce leverage in the corporate sector.

Though this would hurt employment and spending in the short term, it would create solid foundations for sustainable long-term growth, suggests the report, which was released at the EBRD's annual assembly in Warsaw on Wednesday.

Jean-Marc Peterschmitt, managing director for Central and South Eastern Europe, told the STA that it was crucial for Slovenia to convince the international public about the credibility of its reform efforts.

Similarly, Jolanta Gabriel, the head of the EBRD office in Ljubljana, said continuation of the currently encouraging economic trends depended on continuation of the reform drive.

While both said the current political situation creates uncertainty, they noted that the outgoing government had initiated a series of reform measures while parliament had made decisions about privatisation.