Ljubljana – IMAD, the government’s macroeconomic think tank, has reduced the GDP contraction forecast for 2020 from 6.7% to 6.6% and downgraded its growth projection for next year from 5.1% to 4.3%, the Government Communications Office said in a press release on Wednesday after the government took note of IMAD’s report.
IMAD says in its winter forecast that following a significant drop in the second quarter of this year, the economy rebounded better than expected in the third quarter. The think tank expects another drop in the last quarter, but not as severe as it was in the spring.
It believes that the services sector will carry the brunt of the burden of the second coronavirus wave, while sectors depending on international trade will not be as affected.
Due to the persisting demanding epidemiological situation, significant economic recovery is not expected before the second quarter of 2021.
In September, IMAD said that the measures adopted that month to help mitigate the effects of the crisis would shed at least 3 percentage points off the GDP contraction this year.
Today, IMAD director Maja Bednaš said that additional measures adopted later, which were mostly designed to help the labour market, companies and healthcare would increase this effect even more.
The drop in GDP for this year is being affected above all by the drop in value added, especially in hospitality, recreation, sports, culture and personal services. The drop in transport, retail and processing will be somewhat smaller but still significant, said IMAD.
“Due to the negative influences stemming from the international environment and domestic restrictions, we expect to see a significant drop in imports and exports this year,” IMAD said.
Moreover, investments by companies have shrunk and private consumption will also be lower. Meanwhile, state spending will be up in the crisis.
As regards employment, IMAD says it will drop by 1.2% over last year and the number of jobless will increase by about 15%.
“Due to the serious epidemiological situation and the shut-down of many activities the recovery of the labour marker will take place no sooner than the second half of 2021 under the condition of a gradual improvement in the situation,” Bednaš said.
The current situation is also pushing further away into the second quarter of 2021 any significant signs of economic recovery. Thus, IMAD now believes 2021 growth will be lower than projected in September.
A faster recovery could be possible from the second quarter 2021 on, but the epidemiological situation will still play a decisive role, as will the speed of vaccination and policies designed to mitigate the consequences of the epidemic.
“It is of great importance that measures adopted to mitigate the effects of the epidemic be abolished gradually and with thought, while financial support should gradually be redirected at development challenges,” said Bednaš.
In 2022, Slovenia could see a 4.4% growth, IMAD says, upgrading its projection from 3.7%. The think thank believes that most sectors could reach pre-epidemic levels in 2022. It does, however, expect that recovery in tourism will take longer.
The biggest uncertainty as regards the most recent projection is the epidemic – its length and severity. In case that the epidemiological situation improves permanently faster than expected, recovery may also be faster, IMAD said.