OECD predicts contraction for Slovenian economy in 2014

OECD predicts contraction for Slovenian economy in 2014

 

Review by Christos T. Panagopoulos –

The Organization for Economic Cooperation and Development (OECD) has forecast that Slovenia’s GDP will shrink by 0.9% next year, which is a downgrade of one percentage point compared to its spring forecast.

The OECD explains the downgrade by saying that the delay in restructuring of the banking system and the continued consolidation of public finances and deleveraging of companies will further decrease domestic demand.

Domestic demand is expected to pick up only towards the end of 2015. On the other hand, the improving situation on global markets will facilitate Slovenia’s exports, which will remain the only generator of economic activity.

Exports are expected to increase this year by 1.6%, which is to be followed by a 3.1% growth in 2014 and a 4.7% growth in 2015.

Investments are meanwhile expected to decrease by 3.9% this year, by 4.2% next year and by an additional 3% in 2015.

The negative contribution of domestic consumption to GDP has been forecast at 3.4 percentage points in 2013, 3.1 points in 2014 and 1.3 points in 2015.

Despite the increase in VAT, which was implemented on 1 July, inflation is to remain low, at 2.2% this year, dropping to 1.7% next year and to 1.3% in 2015.

The survey unemployment rate is expected to continue to grow and stand at 11.4% by 2015, according to the OECD. It will stand at 10.7% this year and at 11.2% in 2014.

Given the expected high costs of bank restructuring, the general government deficit is projected to amount to 7.1% of GDP this year and to 5.9% of GDP next year, but to drop to 2.9% in 2015.

The cyclically-adjusted deficit, which excludes the effects of high economic growth or recession, is expected to decrease from 4.4% of GDP this year to 2.5% next year. In 2015 Slovenia is forecast to record a surplus of 0.5% of GDP.

The organisation’s forecast is on par with projections by other Slovenian and foreign institutions, with the exception of the European Bank for Reconstruction and Development, which expects Slovenia’s GDP to shrink by 2.5% in 2014.

The OECD has kept its projection for the economic contraction this year at 2.3%, while it expects the country to see 0.6% growth in 2015.

Sources: OECD, Slovenia Times