EU slightly downgrades Slovenia’s growth outlook


The figures are 0.1 points and 0.2 points respectively lower than in the autumn forecast released in November.

GDP growth is forecast to moderate in 2016 mainly due to lower public investment, which is projected to "revert to the historical average after the exceptional 2015," the Commission says.

Domestic demand, in particular private consumption and private investment, look set to become the main growth drivers in 2016 and 2017 due to increasing wages, employment growth and gradually recovering housing market.

Private investment is forecast to rise strongly on the back of rising demand and better financing conditions.

The contribution of net exports, long the main engine of growth, is to decrease progressively, as domestic demand fuels imports; by mid-2017 economic growth is expected to be almost fully driven by domestic demand.

However, the Commission warns domestic demand may be negatively impacted by external factors as well as uncertainty over domestic reforms.

The Commission also anticipates an improvement in public finances. The general government deficit is expected to narrow to 2.4% of GDP, from a projected 2.9% last year and 5% in 2014.

In 2017, under a no-policy-change assumption, Slovenia's deficit is expected to decline to 1.9% of GDP mainly due to growth being significantly above potential.

The figures suggest the Commission could in spring stop the excessive deficit procedure, which it launched in December 2009, as Slovenia is on track to bringing the deficit below the 3% of GDP ceiling.

If the Commission does indeed stop the procedure it will then focus on the realisation of the medium-term budgetary objective, which in Slovenia's case means a balanced budget.

Public debt is also expected to start declining after years of steep growth. It is projected to amount to 79.8% of GDP this year and slightly less in 2017.

Slovenia has received serial warnings about excessive debt from the EU, most recently in the autumn report on macroeconomic imbalances. A new detailed analysis is expected in the coming weeks.

Consumer prices are projected to decline by 0.3% this year, making Slovenia one of only three EU countries (Romania and Bulgaria being the other two) to remain deflationary this year.

IMAD, the Slovenian government's forecaster, said the moderate downgrade of growth prospects was the result of subdued expectations for the majority of Slovenia's trading partners.

Much like the Commission, IMAD expects exports and private spending to drive growth this year.

In autumn IMAD forecast that Slovenia's economy will expand by 2.3% this year and next. It typically issues a revised forecast in March.

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