Slovenian GDP Plunges Most Since 2009 on Slump in Demand

Slovenia’s economy contracted the most in the first quarter since the last three months of 2009 as the government’s austerity push keeps domestic demand weak and exports to the rest of Europe eased.

Gross domestic product shrank 4.8 percent from the same period in the previous year after a 3 percent drop in the last quarter of 2012, the statistics office in the capital, Ljubljana, said today on its website. The Bloomberg survey called for a 2.9 percent drop.

Premier Alenka Bratusek’s Cabinet is struggling to keep the ex-Yugoslav republic from becoming the sixth euro nation to require a bailout. The European Commission forecast a recovery in 2015 after Slovenia’s second recession since 2009 as the government seeks to prop up the ailing bank system with a $1.2 billion recapitalization plan and sell state assets.

“The question is now whether the depth of the recession is sustained, how this impacts official growth projections for the year and what it means in terms of budget financing and implications for the cost of cleaning up the banks,” Timothy Ash, an emerging-market economist at Standard Bank Plc in London, said in an e-mail. “The message to the authorities is that they cannot waste time on key issues like privatization.”

Market Reaction

The yield on the dollar-denominated bonds maturing in 2022 surged to the highest level in six weeks today in Ljubljana. The yield gained 13 basis points from yesterday to 5.92 percent at 1:41 p.m., the highest since April 19, according to data compiled by Bloomberg.

On a seasonally adjusted basis, the economy shrank 3.3 percent from a year ago. GDP contracted 0.7 percent from the previous three months.

The European Union said on May 29 that the government’s overhaul program is on the right track, though it may need to provide more capital for state-owned banks including Nova Ljubljanska Banka d.d.

Slovenia must also choose an independent adviser by next month to review the quality of bank assets to be completed by year-end, the commission said.

This EU recommendation isn’t a “no confidence motion for our central bank since other countries have done the same,” central bank Governor Marko Kranjec told reporters in Bled, Slovenia, today. “We are looking forward to it, since it will show our estimates are correct.”

The government’s overhaul program includes a central bank assessment that the banking industry needs a direct capital injection of 900 million euros ($1.2 billion).

NPL Assessment

“It is essential for the bad bank to assess the non-performing loans it takes over from the banking industry in a fair, transparent and independent fashion,” Tomas Oliveira da Silva from the IHS Global Insight Banking Risk Service, a global information service based in Englewood, Colorado, said in an e-mailed statement yesterday. “This is extremely important to ensure that all banks in the sector are treated alike, independently of their state or private ownership.”

The Cabinet presented the overhaul program earlier this month. It also includes the transfer of bad loans to a bad bank, an asset-sale program, tax increases and public-sector wage cuts.

The sale of Nova Kreditna Banka Maribor d.d., the nation’s second-biggest bank, may start in September, once the lender repairs its balance sheets, Chief Executive Office Ales Hauc said in an interview.

GDP will shrink an annual 2 percent this year and 0.1 percent in 2014, the EU said in a May 3 forecast. The Organization for Economic Cooperation and Development sees Slovenia’s economy contracting 2.3 percent this year and advancing 0.1 percent next year, the Paris-based body said in a report yesterday.

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