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Slovenia's Economy Projected to Shrink 0.9% This Year (adds)

Ljubljana, 15 March (STA) - Slovenia's gross domestic product is expected to shrink by 0.9% this year following a 0.2% contraction in 2011, the Institute of Macroeconomic Analysis and Development (IMAD), a government think-tank, said in its Spring Forecast on Thursday, less than two months after it projected growth of 0.2% for the year.

IMAD also downgraded its earlier projection for 2013 from 2% to 1.1%. In 2014 the economy is expected to pick up, to 2.2%, IMAD boss Boštjan Vasle told the press after the report was presented to the government.

"Both figures depend on the success of consolidation of public finances," Vasle said, arguing that failure to cut the deficit and regain the trust of the markets threatened to prolong the slump.

Only exports, projected to grow by only 1.4%, will have a positive contribution to growth, while all domestic factors remain negative.

Having already contracted for three years, domestic consumption is projected to drop 1.2% on the back of a 3.5% drop in government spending.

Gross fixed capital formation, which dropped 40% since 2009, is to contract by another 1.5% this year, according to Vasle.

The stagnation is expected to increase the number of the unemployed to 119,000 (up from 114,000 in February) this year, with the registered unemployment rate rising to 12.9% (from 12.1% in December).

Wages will stagnate as well, dropping in the public sector in real terms and inching only 0.4% higher in the private sector. Inflation is to hover around 2%.

But even the downgraded forecast comes with a number of risks, with Vasle warning that a deeper-than-expected recession in the eurozone could slow the Slovenian economy down even more.

However, the downgrade is not expected to affect the supplementary budget for 2012, which is already in the making, as the government budgeted a sufficient, EUR 100m buffer in the revenue forecast, Finance Minister Janez Šušteršič said.

The government, therefore, remains committed to reducing the budget deficit to 3% of GDP.

Šušteršič acknowledged that an alternative scenario of not trimming spending so much would have a positive impact on economic growth, but that could put Slovenia in a situation where it could no longer manage debt or borrow at normal market conditions.

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