Country Report Slovenia July 2008

Outlook for 2008-09

• The ruling coalition, led by the Slovenian Democratic Party (SDS), is likely to stay in power until the general election in late 2008.
• Although the SDS could perform well at the election, the next government looks more likely to be formed by centre-left parties, whose combined popularity is higher.
• The next government is likely to honour Slovenia's tradition of consensus-based policymaking, regardless of its political orientation. Social and economic reforms will therefore continue to be implemented at a slow pace.
• The Economist Intelligence Unit expects the budget deficit to stay well below the limit of 3% of GDP prescribed by EU rules in 2008-09, although the government could overshoot its targets.
• We forecast that average annual real GDP growth will moderate to 4.5% in 2008 and to 4% in 2009, from 6.1% in 2007, as the expansion in investment slows from the exceptionally strong pace seen in 2007.
• We forecast that average inflation on an EU-compatible basis will rise to 5.6% in 2008, from 3.8% in 2007, and then fall back in 2009, as economic activity slows further.

Monthly review

• The Irish rejection of the EU reform treaty (the Lisbon treaty) in a referendum on June 13th has thrown the ratification process into disarray and marred the final few weeks of the Slovenian presidency of the EU.
• The opposition Social Democrats (SD) continue to lead the main opinion polls, followed closely by the ruling SDS.
• In June the government and 21 out of 27 public-sector trade unions signed an agreement that provides for a 13% rise in public-sector wages spread over the next two years, finally bringing to an end a protracted period of negotiations.
• At its June policy-setting meeting the European Central Bank (ECB) indicated that it would raise its benchmark rate to 4.25% at its meeting in early July.
• Real GDP growth picked up to 5.4% year on year in the first quarter of 2008, buoyed by a strong rebound in construction activity.
• The continuing rise in global commodity prices as well as buoyant domestic investment activity have boosted Slovenia's merchandise imports, contributing to a marked further widening in the current-account deficit.

Source: Country Report