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IMAD Downgrades Growth Forecast (II)

Ljubljana, 02 April (STA) - The Institute for Macroeconomic Analysis and Development (IMAD) downgraded the growth forecast for Slovenia Friday, projecting that the economy will expand by 0.6% this year and a more robust 2.5% in the next two years.

The projection in the spring forecast marks a 0.3 percentage point downgrade on the autumn forecast by the government think-tank.

"While the situation in international markets has improved, domestic demand has not been recovering as we expected in the autumn," IMAD director Bostjan Vasle explained at Friday's press conference in Ljubljana.

Vasle estimates that it will take Slovenia four to five years to recover from the 7.8% contraction of GDP last year.

The key factor in the pick-up will be an improvement in the international environment. Exports are projected to grow by 4.3% this year.

Private spending will dip by a further 0.5% after last year's 1.4% fall. Vasle said the main reason was the insecure situation on the labour market, which is expected to aggravate further, coupled with a slowdown in pay growth.

The number of jobless is forecast to increase to an average of around 105,000 during the year from nearly 100,000 at the present. The unemployment rate is expected to rise 2 percentage points to 11.1%.

After a 21.6% contraction in investment, the think-tank expects a minor growth of 0.5% this year, on account of more robust investment in capital goods.

Investment in construction, especially housing, is set to drop again. Indeed, IMAD expects that construction will be the biggest drag on growth.

On the upside, manufacturing and public services are expected to expand, Vasle explained.

Provided that economic activity picks up and in the absence of any international shocks, IMAD expects inflation to reach 1.3% this year.

The trade balance is expected to deteriorate and the balance of payments deficit will rise to 1.8% of GDP from 1% last year.

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