Slovenia's GDP Forecast Downgraded by 0.3pp to 3.1%

By , 22 Nov 2019, 10:46 AM Business
Slovenia's GDP Forecast Downgraded by 0.3pp to 3.1% www.ecb.europa.eu CC-by-1.0

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STA, 21 November 2019 - The Organisation for Economic Co-operation and Development (OECD) has downgraded Slovenia's GDP growth forecast for 2019 from 3.4% to 3.1% after already downgrading it slightly in May. Forecast for 2020 and 2021 indicate similar growth of 3.0% and 3.1%, respectively.

The OECD says that private consumption will continue to be the main driver of growth, sustained by higher wages and solid employment gains.

"Uncertainty about the external environment will slow the pace of new business investment. Improvements in export performance will slow with rising labour unit costs."

Fiscal policy will remain supportive of growth in the coming two years, driven by higher public sector wages and social transfers, the OECD says.

Measures to restrict pathways to early retirement would mobilise older workers, while accelerating privatisations and decentralising wage bargaining, would contribute to improve labour allocation, and alleviate labour shortages and wage pressures, the OECD says.

Meanwhile, economic growth is projected to remain broadly stable in 2020 and 2021. A deterioration in cost competitiveness, owing to higher labour costs and weak productivity gains, will hold back export growth, says the OECD.

Investment will continue to slow somewhat in the next two years, despite higher construction activity, as spending on machinery and equipment weakens. A slow recovery of exports and business investment is expected towards the end of 2021.

The main upside risk stems from a faster recovery of business sentiment and business investment growth. On the downside, prolonged tensions in the international environment could lead to lower-than-anticipated export market growth.

Today's downgrade comes after the OECD has already changed Slovenia's forecast from 3.6% to 3.4% for 2019 in May. However, at that time the OECD also improved the country's forecast for 2020 from 2.7% to 3.1%.

This forecast for Slovenia for 2019 is the most optimistic of all forecast updated in recent weeks, both domestic and foreign.

The European Bank for Reconstruction and Development expects Slovenia's GDP to grow 3.0%, the International Monetary Fund (IMF) 2.9%, the government macroeconomic think tank IMAD 2.8% and the European Commission 2.6%.

Banka Slovenije is yet to update its forecast this fall after saying in May that the country's economy is expected to grow 3.2% this year.

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