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Slovenia Business Week no. 18: EU Forecast for Slovenia: Stable Growth and Less Investment

Slovenia's gross domestic product (GDP) growth will slow down from 5.2% in 2006 to 4.3% this year and 4% in 2008

Slovenia's gross domestic product (GDP) growth will slow down from 5.2% in 2006 to 4.3% this year and 4% in 2008, as a result of lower investment spending, the European Commission says in the Spring Forecast which was released in Brussels on Monday, 7 May.

The Commissions believes that the cooling off will substantially decrease investment for companies. However, booming construction will retain the level of investment in fixed assets.

Construction of buildings will continue strongly until 2008, when the transitional period that Slovenia got for keeping a lower VAT rate (8.5%) for new flats runs out. The country is also planning to spend heavily on motorways.

The Commission expects Slovenia's unemployment rate to edge down to 5.8% this year and 5.6% in 2008 (6% in 2006), while the forecast for 2008 for the EU 27 stands at 6.7% and for the euro area at 6.9%. Such a decrease is the result of the positive impact of stable growth on the labour market.

The projection for the general government deficit is 1.5% of GDP for this and next year, which is slightly up from 1.4% in 2006. This means that Slovenia's deficit will be about 0.5 percentage points above the euro area average, which is forecast at 1% of GDP this year.

The annual inflation rate will meanwhile rise from 2.5% in 2006 due to higher oil costs and the liberalisation of the energy and gas markets, which could add 0.8 percentage points to the inflation.

The main risk that could jeopardise the forecasts is the uncertainty surrounding the effect of tax reforms, the Commission warns in the report. The reforms could increase or decrease the budget revenues, however the debt is expected to stay stable, below 30% of GDP.

Source: Slovenian Press Agency STA

Author: STA, Slovenian National Press Agency