Slovenia’s economic slump will deepen further this year and next on an extended recession in Europe and faltering demand in its home market amid a government austerity push, the state’s economic institute said.
Gross domestic product will shrink 2.4 percent this year compared with the previous estimate of a 1.9 percent contraction made in March, the Ljubljana-based Institute for Macroeconomic Analysis and Development said in an e-mailed statement today. GDP will shrink 0.2 percent next year compared with the previous estimate of 0.2 percent growth as the risks to the estimates “remain big,” it said.
Indicators suggest “a greater drop in economic activity for most of our trading partners,” Bostjan Vasle, the institute’s director said, according to the statement. The forecast change is also due to the government’s stabilization measures “which will negatively impact the economy,” he said.
Slovenia, a euro member that’s battling its second recession since 2009, is gripped by a banking crisis, which is further undermining growth prospects as the government of Prime Minister Alenka Bratusek seeks to stabilize the financial industry with the creation of a bad bank and a direct capital boost for lenders of 900 million euros ($1.2 billion) to avoid asking European partners for help.
The country’s bank asset management company, or bad bank, will start taking out toxic loans starting June 28 from lenders such as Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. to repair their balance sheets, restore lending to the economy and aid the recovery.
Prime Minister Bratusek’s Cabinet also pledged to raise the sales tax starting next month, cut public sector wages and push with the sale of state-owned enterprises to restore investor confidence. The country has secured funding with the sale of $3.5 billion of debt last month that will be used to recapitalize banks and finance the budget. The budget shortfall is set to rise to 7.9 percent of the gross domestic product by year end, the highest in the European Union.
The yield on the benchmark dollar-denominated notes maturing in 2022, which rose to a record 6.53 percent June 11, advanced 9 basis points from yesterday to 6.36 percent at 12:51 p.m. in Ljubljana, according to data compiled by Bloomberg.
The nation’s export-driven economy shrank an annual 4.8 percent in the first quarter, the second-worst slump in the 27-nation EU after Greece.
The estimates of the institute are used by the government to plan budget spending.
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