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Ernst&Young: Recession Longer But Slovenia Should Avoid Bailout

Ljubljana, 28 June (STA) - The crisis in Slovenia is set to be longer and deeper than had previously been anticipated but the country should nevertheless be able to withstand its effects without the need for international aid, auditing firm Ernst&Young said in its latest economic report.

The report forecasts that Slovenia's economy will contract by 4.9% of GDP this year and continue shrinking next year, when the contraction is anticipated to stand at 2.9%. Growth of 1.1% of GDP is forecast for 2015.

The major cause of the contraction will be an 11.1% drop in gross capital formations this year and a 5.5% drop next year, while household consumption is to fall by 6.7% this year and 2.5% next year, the report prepared together with Oxford Economics says.

Despite the recent growth in Slovenian exports, Ernst&Young forecasts that exports will drop by 2.5% this year and 1.7% next year due to a drop in demand in the EU.

Unemployment is meanwhile expected to rise to 13.9% this year, before hitting 14% in 2014. The auditing firm also forecasts that the budget deficit will stand at 9.6% of GDP this year before receding to 4.4% next year.

Highlighting that investors had feared in April that Slovenia would be next in line after Cyprus to require a bailout to fix its ailing banking sector, the report finds that the country will likely not require aid.

Slovenia managed to raise EUR 1.1bn with treasury bills in April and EUR 3.5bn with US-denominated bonds in May, Ernst&Young says, but warns that risk remains high and that future access to financial markets will depend on the government's ability to restore confidence among investors by ensuring restructuring of banks.

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