On The Edge of a New Recession?
Economic activity in Slovenia weakened again in the second half of last year, the result of further deterioration of economic activity in the international environment and increased tightening of conditions in financial markets.
Economic growth over the past year was very modest (0.5 percent) and this year is expected to be near stagnation (0.2 percent). “The quick slowdown in gross domestic product growth is mainly due to changes in the international environment,” says Boštjan Vasle, director of Institute of Macroeconomic Analysis and Development (IMAD). “These changes will be most reflected in slower growth in exports, which will – with further tightening of financial conditions – also affect the low investment growth.” Such an economic environment will also affect the labour market which is expected to deteriorate further this year. Private consumption is also expected to suffer.
For 2013, international institutions now forecast slightly higher economic growth in Slovenia’s major trading partners. In such an environment, a slight upswing in export demand is expected. Growth in domestic consumption is also anticipated, which will come mainly from the strengthening of private investment and the realisation of construction works that were interrupted or delayed by the crisis. It is predicted that slightly improved labour market conditions will gradually strengthen private consumption and recovery of foreign and domestic demand will affect the growth of economic activity which is expected to be around two percent in 2013.
“Still, the risks of further deterioration of economic activity remain high and is mainly dependent of the situation in the international environment and of the condition in the Slovenian banking system,” Vasle warns. “Risks are also associated with the effectiveness of fiscal consolidation and the planned reforms which would contribute to greater confidence of international financial markets.” Simulations show that the escalation of the situation in the European Monetary Union due to the deepening debt crisis – which may already lead to a decline in economic activity in these countries this year – will result in a decline in the gross domestic product of Slovenia.