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IMAD Boss Asserts Slovenia Can Solve Its Problems (adds)

Ljubljana, 11 July (STA) - The Institute of Macroeconomic Analysis and Development (IMAD) is sticking with its spring forecast that the Slovenian economy will shrink by about 1% this year. The biggest obstacle to recovery remains the banking system, but the country is at this point capable of solving its problems, IMAD head Boštjan Vasle told the press on Wednesday.

"For now all the data show that it is still realistic to expect that the GDP will shrink this year by about 1%," Vasle said at a press conference presenting the July issue of The Economic Mirror.

However, if the economic situation abroad deteriorates the autumn forecast might show a different picture, he added.

Even though the situation in the real sector, the labour market and the financial system is very tough, the head of the government think-tank believes "Slovenia can solve these problems on its own at this point".

Commenting on the plans for inclusion of the golden fiscal rule in the Constitution, Vasle said that if implemented this would provide an "additional motivation, commitment and institutional pressure for the public finances to be balanced and become sustainable quicker".

The rising of yields on Slovenian ten-year bonds significantly affects the Slovenian economy and recent months have been marked by stagnation, Vasle noted.

The rise in exports in all major sectors is slowing down, while negative trends are being recorded in manufacturing, retail and construction.

Bad claims of the entire banking sector are rising, which makes the banking system an increasingly limiting factor in Slovenia's recovery. In the first quarter of 2012, bad claims reached EUR 6bn.

Banks are consequently forming reservations and impairments, which are therefore rising substantially, Vasle noted, adding that the trend was expected to continue in the coming months.

"If bad claims were in the past limited mainly to the construction sector and the part of the economy that was marked by financial takeovers, now they are spreading to other segments as well, especially manufacturing. This is another reason why we can expect the situation to deteriorate," he said.

The situation on the labour market also remains tough. The number of active population decreased by 55,291 between 2008 and 2011, while it dropped by 9379 in the first four months of 2012.

The number of the unemployed decreased slightly in recent months but not on the account of job creation. Unemployment is expected to rise by the end of the year.

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