Business News

Govt: Economy to Grow 2.2% This Year (adds)

Ljubljana, 31 March (STA) - Slovenia's economy is projected to expand by 2.2% this year in line with forecasts in the Spring Report of the Institute for Macroeconomic Analysis and Development (IMAD), which the government adopted at Thursday's session.

In its spring forecast, the think-tank has somewhat downgraded its forecast from last autumn, when it projected growth of 2.5% for this year.

But IMAD expects that the economy will keep gaining momentum, with growth for 2012 expected to stand at 2.6%.

IMAD director Bostjan Vasle told the press after the cabinet session that growth would not be fuelled as much by exports this year as it had been in the past due to changed structure in trade.

In the past Slovenia's exports grew by 1.2% for every 1% growth in international demand, now exports will grow only by 0.8% for each 1%, said Vasle.

Domestic spending will therefore be a greater contributor to growth this year, even though private consumption will increase only by a modest 0.7% and government consumption by 0.8%.

Moreover, IMAD expects a modest revival in capital formation. It anticipated the growth in capital formation to stand at 3% this year and 4.5% next year, a drop on last year's 7%.

Vasle said that a greater reliance on domestic spending will also reflect on the labour market, where conditions are expected to worsen this year, although less so than last year.

The number of people with a job is expected to decrease by 1.2% this year and 0.3% next year, meaning that the number of jobless will stand at 114,000 this year and 116,000 next year.

Meanwhile, inflation is to stand at 3% this year and fall to 2.7% as prices of raw materials start to cool off.

Slovenia's economy is recovering, said Prime Minister Borut Pahor, adding that the recovery could be faster if the country adopted structural reforms more expediently.

IMAD meanwhile assesses that the potential to grow faster is being held back by a drop in the competitiveness of Slovenia's economy and the tough financial situation.

The biggest risk to the forecasts are international factors, the think-tank adds in its forecast.

Vasle said that the economic conditions in Slovenia's most important trade partners will be somewhat worse than last year. He also warned that prices of raw materials, including food and oil, were still rising.

But the biggest risk are the conditions on financial markets, as a worsening in this respect could increase the cost of borrowing.

He stressed that credit rating agencies have already warned Slovenia that a failure to implement pension reform could undermine its ratings, meaning that a failure to implement reform could hurt growth.

IMAD forecasts a nominal increase in pay of 2.5% this year and as much as 3.8% next year, with the private sector leading the way.

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