Country Report Slovenia February 2009

Outlook for 2009-10

• After winning the parliamentary election in September 2008, the Social Democrats (SD) formed a coalition with Zares, the Liberal Democracy of Slovenia (LDS) and the Democratic Party of Slovenian Pensioners (DeSUS).
• The government is likely to remain in office throughout the forecast period, although residual animosity between the centre-left parties could cause occasional instability, as could clashes between these parties and DeSUS.
• In 2009 the government will focus on countering the effects of the global financial and economic crisis. Even once the economy starts to recover, we do not expect any significant social or economic reforms to be implemented.
• The expected sharp economic slowdown will lead to a substantial increase in public expenditure. As a result, we expect the budget deficit to exceed EU-mandated limits in 2009, before falling below these limits in 2010.
• We now forecast a fall in real GDP growth to 0.5% in 2009, from an estimated 4% in 2008, as the growth of domestic and foreign demand slows markedly. In 2010 GDP growth is forecast to pick up modestly, to 1.5%.

Monthly review

• Only two months after the formation of a new governing coalition, tensions have emerged between its constituent parties.
• The long-standing border dispute between Slovenia and Croatia continues to dominate Slovenian foreign policy. In January the EU asked the Nobel laureate Martti Ahtisaari to mediate in the dispute.
• The worsening global economic downturn is exerting its effects more forcefully than previously thought on the Slovenian economy and on its public finances.
• The budget deficit looks set to breach EU rules in 2009, and the government may find it difficult to raise funding from international capital markets for its effort to combat the crisis.
• Available economic indicators suggest that the Slovenian economy came to a near-standstill in the fourth quarter of 2008, and survey data for January appears consistent with a further deterioration.
• Labour market data has responded with a lag to the sharp change in economic conditions in recent months, but is now beginning to paint a more consistently gloomy picture.

Source: Country Report