Slovenia's Economy Projected to Shrink 0.9% This Year (adds)

Ljubljana, 15 March (STA) - Slovenia's gross domestic product is

expected to shrink by 0.9% this year following a 0.2% contraction in 2011,

the Institute of Macroeconomic Analysis and Development (IMAD), a

government think-tank, said in its Spring Forecast on Thursday, less than

two months after it projected growth of 0.2% for the year.

IMAD also downgraded its earlier projection for 2013 from 2% to 1.1%. In

2014 the economy is expected to pick up, to 2.2%, IMAD boss Boštjan Vasle

told the press after the report was presented to the

government.

$Both figures depend on the success of consolidation

of public finances,$ Vasle said, arguing that failure to cut the

deficit and regain the trust of the markets threatened to prolong the

slump.

Only exports, projected to grow by only 1.4%, will have a

positive contribution to growth, while all domestic factors remain

negative.

Having already contracted for three years, domestic

consumption is projected to drop 1.2% on the back of a 3.5% drop in

government spending.

Gross fixed capital formation, which dropped 40%

since 2009, is to contract by another 1.5% this year, according to

Vasle.

The stagnation is expected to increase the number of the

unemployed to 119,000 (up from 114,000 in February) this year, with the

registered unemployment rate rising to 12.9% (from 12.1% in

December).

Wages will stagnate as well, dropping in the public sector

in real terms and inching only 0.4% higher in the private sector. Inflation

is to hover around 2%.

But even the downgraded forecast comes with a

number of risks, with Vasle warning that a deeper-than-expected recession

in the eurozone could slow the Slovenian economy down even

more.

However, the downgrade is not expected to affect the

supplementary budget for 2012, which is already in the making, as the

government budgeted a sufficient, EUR 100m buffer in the revenue forecast,

Finance Minister Janez Šušteršič said.

The government, therefore,

remains committed to reducing the budget deficit to 3% of

GDP.

Šušteršič acknowledged that an alternative scenario of not

trimming spending so much would have a positive impact on economic growth,

but that could put Slovenia in a situation where it could no longer manage

debt or borrow at normal market conditions.