Nov. 7 (Bloomberg) -- Slovenia will have the only economy among the European Union’s eastern members to contract next year as the country teeters on the brink of needing an international bailout, the European Commission said.
The euro-area nation’s gross domestic product will contract 2.3 percent this year and 1.6 percent in 2013 before returning to growth of 0.9 percent in 2014, the commission said in its autumn economic forecasts, published today in Brussels. All of the nine other post-Communist countries in the bloc will post an expansion next year, the EU’s executive arm said.
“The downturn will continue well into next year,” the European Commission said in the report. “The stabilization in the international environment from 2013 is expected to trigger stronger growth in export volumes, but this is not enough to overcome weak domestic demand.”
The government has been pushing for a bank recapitalization plan, the creation of a wealth fund and other measures to overhaul the economy, mired in its second recession in three years, as it seeks to avoid becoming the sixth euro-region nation after Greece, Ireland, Portugal, Spain and Cyprus to require assistance.
State-owned banks including Nova Ljubljanska Banka d.d. are at the center of investors’ concern that the Adriatic nation may be forced to ask for a bailout to prop up the financial industry. Prime Minister Janez Jansa wants to create a so-called bad bank that would take non-performing loans from lenders in exchange for government-guaranteed bonds of as much as 4 billion euros ($5.13 billion), according to Finance Minister Janez Sustersic.
“The banking system remains fragile despite the second recapitalization of the largest bank in June,” the European Commission said in its report today.
The government boosted capital at Nova Ljubljanska, the nation’s biggest bank, by 381 million euros in July. Finance Minister Sustersic has said the nation’s three largest lenders may need as much as 1 billion euros of additional capital.
The ratio of bad loans at banks in Slovenia continues to rise and reached 13 percent of all liabilities at the end of August, Bostjan Vasle, director of the government’s forecasting institute said today in Ljubljana. He said lenders have repaid 7 billion euros of debt since the start of the crisis.
Slovenia’s general government deficit is forecast to decline to 4.4 percent of total output by year’s end from 6.4 percent in 2011, the commission said. By the end of 2013, the gap will be at 3.9 percent, above the threshold set for euro region nations in the stability pact.
Gross government debt is set to rise to 62 percent of gross domestic product from a 47 percent level at the end of last year, according to the report.
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