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Banka Slovenije expects 6-16% GDP contraction in 2020

Ljubljana, 31 March (STA) - Issuing a preliminary estimate of the impact of the coronavirus pandemic on the Slovenian economy, Slovenia's central bank Banka Slovenije said on Tuesday that the cost will likely be higher than in the last global financial crisis. The central bank expects GDP to fall by between 6% and 16%.

Publishing an analysis that does not factor in emerging fiscal and monetary policy measures, Banka Slovenije outlined three possible scenarios. It stressed the impact would be very large in any case, while its gravity would depend on how long containment measures remained in place and on the speed of recovery after they are lifted.

The central bank, which expects a significant share of the shocks to drag on into the post-lockdown months as well, said that private consumption will fall, in particular where direct contact is necessary. Taking into account an expected expansion of on-line purchases, it projected a private consumption decline of 2.4-9% for the year.

Absent any measures, employment would go down by between 1.8% and 4.7% and the unemployment rate would more than double. Banka Slovenije stressed things would depend on the effectiveness of the proposed measures that are meant to significantly reduce labour costs during the crisis and thus help preserve jobs.

Prices could fall by up to 1% on average, a key force this year being cheaper energy resulting from the low oil prices, but food prices will go up nonetheless. Given the drop in demand for a number of services, core inflation will also decrease significantly.

Government debt is expected to rise as well, with the expected GDP drop alone likely increasing it from 66.1% to between 70% and 80% of GDP. This estimate does not include the government measures that will increase the level of nominal debt while simultaneously mitigating the decline in economic activity.

The start of a new investment cycle will depend on the capacity of both companies and banks to survive the lockdown period. Looking at the emergency measure deferring loan payments by up to 12 months, Banka Slovenije said it could decrease banks' cash flow by EUR 0.9-1.6bn.

However, the central bank added that, absent receiverships and mounting losses resulting from this, even the worst case scenario, meaning all companies asking for a deferral and cash flow being cut by EUR 2 billion, would leave banks with enough liquid assets - the lost cash flow amounting to 35% of primary liquidity - to help kick-start the economy again.

Banka Slovenije said it would be able to provide a more detailed estimate only once the measures that are being adopted by the government and international institutions take final form.

"In any case, the results of this analysis demonstrate the urgency of coordinated action by institutions both at state level and the level of joint European institutions," the central bank stressed.