Country Report Slovenia November 2009

Outlook for 2010-11

• The centre-left government elected in September 2008 is expected to remain in office throughout the forecast period.
• Animosity among the coalition partners, headed by the Social Democrats (SD), may cause friction and threats to stability.
• Relations between Slovenia and Croatia are likely to improve, following an agreement in September between the prime ministers of the two countries on how to resolve their long-standing border dispute.
• The government will initially focus on mitigating the effects on Slovenia of the global economic downturn. Progress on structural reforms will be slow.
• The Economist Intelligence Unit forecasts that the budget deficit will contract gradually, from an estimated 6.1% of GDP in 2009 to an average of 4.4% of GDP in 2010-11, as a return to economic growth lifts tax receipts.
• We estimate that real GDP will contract by 6.9% in 2009. We expect growth to return in 2010-11 to an average of 1.9%, as demand for Slovenian products gradually picks up in the euro zone.
• We forecast a rise in the current-account deficit, from the equivalent of an estimated 1.4% GDP in 2009 to an average of 3.2% of GDP in 2010-11, as imports, including raw materials for processing for exports, increase.

Monthly review

• Industrial unrest has returned to Slovenia, with workers staging strikes for increased pay, and police officers protesting against a proposed wage freeze.
• The Slovenian prime minister, Borut Pahor, has said that his government may call a referendum on whether Slovenia should accept the outcome of a future international arbitration ruling on Slovenia's border dispute with Croatia.
• The European Commission has launched a formal procedure against Slovenia and eight other countries because of the scale of their budget deficits.
• The consolidated budget deficit ballooned to 7.1% of GDP in the second quarter, as tax receipts plummeted and government expenditure expanded to mitigate the impact of the economic crisis.
• The government has published its plans for reforming the pension system, raising the retirement age to 65 and limiting annual pension increases.
• Consumer price inflation declined in September by 0.1% year on year, as global oil prices remained relatively low and domestic demand weakened.
• Labour productivity declined by 8% year on year in the second quarter, owing to the continuing high level of wage growth in the public sector.