Hot topics

Slovenia Business Week no. 43/2004: IMAD Forecasts Higher Economic Growth and Inflation in 2004

Slovenia's economic growth in 2004 will be 4 percent, or 0.4 percentage points more than forecast last spring by the government Institute for Macroeconomic Analyses and Development (IMAD)

Slovenia's economic growth in 2004 will be 4 percent, or 0.4 percentage points more than forecast last spring by the government Institute for Macroeconomic Analyses and Development (IMAD). Annual inflation will be, according to IMAD, higher as well, standing at 3.5 percent rather than the 3.3 percent forecast in the Spring Report.

The government was acquainted with the revised economic growth and inflation outlook for the country from the IMAD Autumn Report on Thursday, 14 October.

On the other hand, IMAD analysts did not change considerably their spring forecast of 2005 economic growth; the figure was upgraded by a mere 0.1 of a percentage point to 3.8 percent. IMAD director Janez Sustersic explained the figure could not have been upgraded more due to the global uncertainty connected to the rising oil prices.

The inflation forecast for 2005, however, remains the same as in the Spring Report, expectedly falling to 3 percent by the end of next year, Sustersic told the press after the government weekly session.

Although inflation is currently higher than expected, the beneficial effects of entering the exchange rate mechanism ERM II have offset even higher inflation as suggested by rising oil prices.

According to Sustersic, the stabilisation of the tolar-euro exchange rate and lower food prices have had a beneficial impact on inflation expectations.

Oil prices, which have contributed one percentage point to inflation growth, have exceeded all expectations. IMAD based its spring forecast on oil price of US$ 27.7 per barrel - the average price reached US$ 40.5 in the third quarter.

The autumn forecast as well as the figures for 2005 are based on the expectation that the average price of oil will be US$ 37 per barrel until the end of the year, and next year.

Should the oil price be 10 dollars higher, inflation will be another 0.8 percentage points higher and GDP growth would be 0.3 percentage points lower, Sustersic explained.

The higher than expected GDP growth figure is a result of the one-off effect of EU entry on 1 May and faster global economic recovery, according to Sustersic.

Exports were the main motor of growth, soaring by 11.5 percent year-on-year in the first six months. The growth of exports is expected to slow down, yet end-year real growth is still expected to amount to 8.5 percent.

The autumn forecast has also upgraded end-year import growth, from 6.8 to 9.2 percent, although the domestic consumption outlook has not been corrected.

According to the report, employment will start increasing after two lean years, by 0.4 percent this year and by 0.3 percent in 2005. Consequently, ILO-compatible unemployment is to stand at 6.4 and 6.1 percent, respectively.

Source: Slovene Press Agency STA

Author: Branka Murn