Country Report Slovenia January 2009

Outlook for 2009-10

• 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 measures to counter the effects of the global financial and economic crisis. Even once the economy begins to recover, the Economist Intelligence Unit does not expect any significant social or economic reforms to be implemented.
• The budget deficit is likely to stay below EU-mandated limits in 2009-10, although the expected economic slowdown will lead to a substantial increase in welfare expenditure.
• We forecast a fall in real GDP growth to 1.4% in 2009, from an estimated 4.2% in 2008, as the growth of domestic and foreign demand slows markedly. In 2010 GDP growth is forecast to pick up to 2.5%.
• We forecast that average inflation will fall in 2009-10, from an estimated peak of 5.7% in 2008, although loose monetary policy and a failure to adjust wage settlements to the worsened economic conditions could limit this fall.

Monthly review

• In late November the prime minister, Borut Pahor, caused widespread controversy by appointing a former foreign minister, Dimitrij Rupel, as his foreign policy adviser.
• In December the government announced a package of measures worth around 800m (US$1.2bn, or around 2% of estimated 2008 GDP) to fight the effects of the global economic downturn.
• The European Central Bank (ECB, the euro area's central bank) reduced the key refinancing rate by 75 basis points to 2.5% on December 4th. This is the third time that interest rates have been lowered in as many months.
• Real GDP growth slid to 3.8% year on year in the third quarter, compared with 5.5% in the second, owing to a sharp slowdown in domestic demand.
• Available economic and survey data point to further deterioration in economic prospects for the fourth quarter and after. Construction activity in particular looks set to slow sharply.

Source: Country Report