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Slovenia’s Economy Falls Into a Recession as Exports Weak

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Feb. 29 (Bloomberg) -- Slovenia’s economy slid into a recession in the last quarter of 2011 as export growth slowed amid austerity measures by governments in Europe to stem the sovereign-debt crisis.

Gross domestic product contracted 0.7 percent from the previous quarter after shrinking a revised 0.4 in the previous three months, the statistics office in Ljubljana said today on its website. GDP fell 2.8 percent in the fourth quarter from the same period in 2010 and declined 0.2 percent for all of 2011. The median estimate of Bloomberg survey of six economists as for a 0.9 percent contraction from a year earlier.

“The annual drop in the fourth quarter is an ugly number and doesn’t bode well for 2012, especially for the first quarter,” Radivoj Pregelj, an analyst at Abanka Vipa d.d., said by phone. “Final consumption was very weak, which was also reflected in poor earnings at Mercator Poslovni Sistem d.d.”

Slovenia’s export-dependent recovery is suffering as governments in Europe implement savings measures as mandated by the new fiscal pact pushed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

Economic growth will probably be hampered by the unprofitable banking industry, which is relying on loans from the European Central Bank for liquidity.

‘Negative Surprise’

“Today’s GDP result is a negative surprise,” Finance Minister Janez Sustersic told reporters in Ljubljana. “it just enforces our belief on the need to cut public spending.”

The euro-region nation aims to cut the budget deficit to about 3 percent of GDP by year’s end to show investors it is on course to lower debt levels and “reduce the pressure” on government bonds, Sustersic said.

Slovenia’s borrowing costs on the benchmark bonds surged to over 7 percent in November as the European debt crisis threatened to engulf Italy, its neighbour to the west and the third-biggest trading partner after Germany and Austria.

The yield on notes maturing in Jan. 2021 has fallen since and was at 5.28 percent at 2:42 p.m. in Ljubljana, according to mid-pricing data compiled by Bloomberg.

Nova Ljubljanska Banka d.d., the country’s biggest lender, which controls more than a third of the market, reported a 239 million-euro ($322 million) loss last year. Its smaller competitor, Nova Kreditna Banka Maribor d.d., is also likely to report its first loss since selling shares publicly in 2007.

Rising Inflation

Slovenia’s inflation rate in February rose to the highest level in more than three years, advancing to 2.9 percent from 2.3 percent the previous month, the office said today in a separate statement.

Consumer prices are within “normal” limits “since core inflation is still subdued,” Pregelj said.

Mercator, the largest retail store chain in the Balkans, reported a 22 percent drop in net income for 2011 and a net loss for the fourth quarter.

GDP of the 17-member euro currency bloc is forecast to decline 0.3 percent this year, while the Slovenian economy is set to drop an annual 0.1 percent, the European Commission said in a Feb. 23 report. That compares with a 0.2 growth forecast by the government’s economic institute.

Spending Cut Vows

The government of Prime Minister Janez Jansa, which took power on Feb. 10 after a snap vote in December, pledged to cut spending by 800 million euros to allay investors’ concern over public debt that has more than doubled since 2007, when the former Yugoslav nation adopted the euro.

Since September, when the previous government of Borut Pahor was ousted, Slovenia’s credit ratings have been cut by Moody’s Investors Service, Fitch Ratings and Standard & Poor’s on a weak outlook for the banking industry and the economy amid the debt crisis in Europe.

Slovenia is rated A2 at Moody’s, the fifth highest investment grade and an equivalent A+ at S&P. Fitch rates the the country A. All three companies have a negative outlook on the ratings.

To contact the reporter on this story: Boris Cerni in Ljubljana, Slovenia at bcerni@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net

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