Central bank slightly downgrades GDP growth forecast for 2019

Ljubljana, 12 June (STA) - Slovenia's central bank forecasts that the economy will expand by 3.2% this year, a slight downgrade from the 3.4% growth rate it projected in December. In 2020 and 2021 gross domestic product (GDP) is expected to grow by 2.9%, according to a forecast of macroeconomic trends released on Wednesday.

"The more moderate GDP growth will be the consequence slightly lower growth of foreign demand and the gradual transition to a more mature period of the economic cycle," the central bank said, adding that downside risks were now "more pronounced" due to non-domestic factors.

Over the medium term growth will remain broad-based, driven by private spending and investments.

Private spending is projected to grow at over 3% this year and 2.9% in 2020, rates that are significantly higher than in the last two years.

Investments are to expand by 6.5% this year and 6% next year, down from double-digit rates recorded in the last two years.

Exports, which had been the engine of growth until 2018, are forecast to grow at 5-6% through 2021 and will not contribute to GDP growth on a net basis this year or in 2020 given that imports are already outpacing exports.

But both private spending and investments will hinge on the labour market, where job creation is expected to slow down even as wages grow, which will undermine the cost competitiveness of the economy.

Faced with labour shortages, businesses will have to invest to transition the economy to higher value added. Fortunately, interest rates remain low, supporting corporate investments.