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Central Bank Downgrades 2011 Growth Forecast to 1.3% (II)

Ljubljana, 04 October (STA) - Banka Slovenije, Slovenia's central bank, downgraded the GDP growth forecast for this year to 1.3% from 1.8%, citing lacklustre domestic consumption and persistently high unemployment. Growth is to accelerate to 1.7% in 2012 and to above 2% in 2013, the central bank said on Tuesday.

Domestic consumption is unlikely to increase this year, with growth above 1% not expected before 2013. The same applies to investments, said Damjan Kozamernik, the head of the analytical and research department, as he presented the central bank's latest price stability report.

Kozamernik also highlighted the situation in the construction sector, which is still struggling and is not expected to recover before 2013, and employment, which is not projected to improve before 2013.

Governor Marko Kranjec called for structural reforms of the labour market, pensions and health care. He said in-depth changes to legislation in bankruptcy and the administration of the public and private sectors as a whole was also needed.

He hopes that a stabilisation of the political situation following the upcoming election will have a positive effect on economic policies.

Kranjec moreover pointed to problems on international financial markers, saying that companies in Slovenia had excessive debts which will weigh down on them for some time to come.

Banks are presently not capable of servicing the economy as they should, he added, while also expressing understanding that they are refraining for funding non-profitable projects of companies with problematic balance sheets.

The inflation rate is projected by Banka Slovenije to amount to 2% at the end of this year, and hover at around 1.6% in 2012 and 2013. The annual inflation stood at 2.1% in September.

Kozamernik added that global projections continued to deteriorate, which is why "there also exists a much higher probability that growth at the end of the year will be even lower than forecast".

Kozamernik followed Kranjec in urging structural changes as the only way to avert long-term problems with slow growth. He does not expected a eurozone-wide recession, although the present problems could drag on for several quarters.

The central bank's forecast comes two weeks after the Institute of Macroeconomic Analysis and Development, the government's macroeconomic think-tank, downgraded Slovenia's growth forecast to 1.5% from 2.2%. Slovenia's economy grew by 1.4% in 2010.

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