Gross domestic product contracted 3.2 percent from a year earlier, compared with a 0.2 percent drop in the first three months, the statistics office in Ljubljana said on its website. A survey of six economists forecast a 1.2 percent drop.
“The result in the first quarter was clearly a positive surprise that will not be repeated in the second quarter,” Wolfgang Ernst, an analyst at Raiffeisen Bank International AG (RBI) in Vienna said before the report. “Given weak retail sales data, especially in May and June, and ongoing weak industrial production, I would expect GDP to fall up to 2 percent.”
Economists from London to Warsaw have said Slovenia is on course to seek international assistance as the economy is on the verge of entering its second recession in three years and its lenders rely on the European Central Bank loans for liquidity. Slovenia’s credit rating was cut by Moody’s Investors Service, Fitch Ratings and Standard & Poor’s in early August because of domestic banks’ need for fresh capital. All three rating companies keep a negative outlook on the sovereign.
Slovenia’s borrowing costs surged above 7 percent earlier this month, a threshold that forced Ireland and Portugal to ask for an international bailout.
“Government bond yields have been over 7 percent for much of the past few weeks, but for now the government appears to be OK with these borrowing costs,” William Jackson, an emerging- markets economist at Capital Economics Ltd. in London, said yesterday. “For the government to seek help, it would probably require a fresh flare-up in tensions in the euro zone, causing local bond yields to spike and making borrowing prohibitively costly.”
The government of Prime Minister Janez Jansa, which came to power in February after early elections, has denied it will seek assistance from the European Union to prop up its banking industry. The administration is also pushing to implement spending cuts and tax increases to gain investor confidence as the debt crisis that started more than two years ago in Greece continues to roil markets.
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