Country Report Slovenia June 2009

Outlook for 2009-10

• The centre-left coalition government, elected in September 2008, is likely to remain in office throughout the forecast period.
• Animosity among the coalition partners, headed by the Social Democrats (SD), may cause friction and occasional threats to stability.
• Relations between Slovenia and Croatia are likely to remain strained over their territorial dispute, which the EU is trying to resolve through arbitration.
• In 2009 the government will focus on countering the effects of the global economic crisis, which will further slow progress on structural reforms.
• The government will try to limit the impact of the economic slowdown by increasing public expenditure. The Economist Intelligence Unit forecasts a budget deficit of around 4.8% in 2009, well in excess of EU-mandated limits.
• We forecast a contraction in real GDP of 4% in 2009 as a result of the impact of the global downturn on Slovenian exports. We expect a modest rebound, of 0.5%, in 2010.

Monthly review

• The government has survived its first serious crisis, after the economy minister, Matej Lahovnik, withdrew his threat to resign over the debt rescheduling policy of the country's largest bank.
• Opinion polls suggest a close race between the SD and the opposition Slovenian Democratic Party (SDS) in the election for the European Parliament.
• The government has said that it will not accept the EU's proposal for an arbitration tribunal to resolve the border dispute between Slovenia and Croatia, unless Slovenia's amendments are incorporated into the proposal.
• The government has continued its consultations with businesses and the trade unions over its third anti-crisis package. The first measure to be taken is an employment subsidy to companies that send their workers on leave.
• The central bank has intervened in the debate on loans extended to tycoons for buy-outs, urging commercial banks to act independently, despite government attempts to use state guarantees to influence their lending policy.
• Industrial output contracted by 19.5% year on year in the first quarter as the recession in the euro zone slashed demand for Slovenian exports.
• The first-quarter trade deficit, at 209m (US$272m), shrank by nearly two-thirds year on year as a drop in international commodity prices led to faster contraction in imports than in exports.

SOURCE: Country Report