Banka Slovenije expects GDP to contract by 7.6% this year, expand by 3.1% in 2021

Ljubljana – Banka Slovenije, Slovenia’s central bank, expects the economy to contract by 7.6% this year before growing at a rate of 3.1% in 2021 and 4.5% in 2022. The forecast hinges on the successful rollout of coronavirus vaccines.

The figures for this year and next mark a sharp downgrade from its forecast in June, when the central bank projected that the economy would contract by 6.5% this year and expand by 4.9% in 2021. The forecast for 2022 has, however, been upgraded by almost a full percentage point.

“According to this scenario, Slovenia would return to the pre-corona level at the end of 2022,” said Arjana Brezigar Masten, the head of the central bank’s analytical and research department.

Brezigar Masten said the forecast hinged on the successful rollout of coronavirus vaccines.

If the second wave of the epidemic could be contained this year, Slovenia could return to pre-corona levels in 2021. If the unfavourably epidemiological situation persists, GDP could continue declining next year and Slovenia would not reach pre-corona levels before the end of 2022.

The contraction has been substantially cushioned by economic stimulus measures. Absent these measures, the contraction would be worse by a third, she said.

Government stimulus has also kept the labour market stable, which is why the central bank expects unemployment will not be as bad as initially feared. The forecast indicates employment will decline by 1.5% this year and 0.3% next year before rising by 1.4% in 2022.

According to Brezigar Masten, survey unemployment is expected to increase next year but remain below 6%, which is “significantly less than in the previous financial crisis.”

“Model estimates show that government measures, in particular subsidies for furlough and shorter work time, have so far managed to preserve roughly 16,000 jobs.”

Exports are projected to contract by over 11% this year before expanding by 7.2% and 6.8% in the next two years. Imports, expected to plunge by over 13% this year, are to outpace exports in the next two years.

Consumer prices are projected to drop by 0.2% year-on-year, but once the epidemiological situation improves the central bank expects inflation to pick up, hitting 0.9% next year and 1.3% in 2022.