EU Sees Slovenia Recession Extending on Exports, Poor Demand

Slovenia’s economy, which slipped back into recession last year, will shrink the most in the European Union after Greece and Cyprus this year on weakening investment, a rising jobless rate and faltering domestic consumption, the European Commission said.

The economy is forecast to decline 2 percent this year after an estimated 2 percent contraction last year, the Commission said in a report released today in Brussels. A recovery of 0.7 percent can be expected next year, depending on a “swift” resolution of the banking crisis and a successful restructuring of the over-indebted corporate sector, it said.

Next year, “some stabilization of the economy is expected, although this process will be gradual and subject to risks in both directions depending on the speed of restructuring and developments in the banking sector,” the EU’s executive arm said in the report. The bank recapitalization plan adopted at the end of last year may be at risk due to “intensified political uncertainty.”

Slovenia’s ailing banking industry, which last year reported a pretax loss of 664 million euros ($878 million), has raised investor concerns the Adriatic nation may be forced to seek a bailout amid a political crisis that may lead to early elections.

Deficit Forecasts

The budget deficit is forecast to widen to 5.1 percent of gross domestic product at the end of the year, mostly due to the conversion of the state’s hybrid loan for Nova Ljubljanska Banka d.d. into equity. It will total 4.7 percent in 2014, the commission predicted. Slovenia will breach the 3 percent limit by the end of the year, according to Olli Rehn, the EU’s economic and monetary affairs commissioner.

“Deadlines can or may be extended if the recommended structural fiscal effort have been delivered and if unexpected growth shortfalls make major impact on public finances,” Rehn said in Brussels today.

Public debt, estimated at 53.7 percent of GDP at the end of last year, will rise to 59.5 percent by the end of the year and to 63.4 percent in 2014, the EU said.

The benchmark SBITOP stock index fell 3.3 percent to 612.49 as of 1:51 p.m. in Ljubljana, its biggest drop since Jan. 14 and the second-largest in the world today. Slovenia’s dollar-denominated bond maturing in 2022 was unchanged from yesterday at 5.15 percent at 1:51 p.m. in Ljubljana, according to data compiled by Bloomberg.

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