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Central Bank Forecasts 1.9% Contraction for 2013 (adds)

Ljubljana, 02 April (STA) - Slovenia's central bank forecasts that the country's economy will shrink by 1.9% this year, a downgrade from the 0.7% contraction it projected in autumn, according to the Macroeconomic Trends and Projections report released on Tuesday.

Banka Slovenije expects that growth will be restored next year, when GDP is projected to expand by 0.5%.

"This year and in the coming year a lot will depend on the actions of the state," central bank governor Marko Kranjec told the press, urging a clear signal that there is an intention for stabilising the economic situation.

Kranjec said that projections were suggesting "a strong improvement" for next year, but added that this will hinge on "the international environment and even more so on domestic policies".

He called for structural reforms and a message to international markets "that we are serious about these policies".

Uncertainties are also related to the high unemployment rate, "which can become long-lasting", warned Damjan Kozamernik, boss of the central bank's analytical department.

This is the reason why domestic spending is not expected to contribute to growth before 2015, Banka Slovenije believes, projecting the same for investments.

The central bank moreover pointed to a continuing deterioration of trends in manufacturing since 2011 and to conditions for business also being aggravated by falling foreign demand and tougher access to credit.

However, foreign trade is having a positive effect on GDP growth, with projections indicating a 4% to 4.5% of GDP balance of payments surplus in the coming years. This should contribute approximately one percentage point to GDP growth.

Banka Slovenije expects inflation to stand at 2.3% this year, at 1.4% next year and at 1.6% in 2015. "We do not expect any significant pressures in these conditions. We expect a relatively moderate core inflation of around one percentage points," Kozamernik said.

The central bank's growth projection is in line with last week's forecast by the Institute of Macroeconomic Analysis and Development, a government think-tank whose figures are used by the government in budgeting.

Foreign forecasters have made similar projections, with the International Monetary Fund (IMF) and the EU both forecasting a 2% contraction and the Organisation for Economic Cooperation and Development (OECD) projecting a 2.1% decline in GDP.

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