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Slovenia Business Week no. 14: IMAD Upgrades GDP Growth, Inflation Forecast

The Institute for Macroeconomic Analysis and Development (IMAD) projects that Slovenia's gross domestic product will grow by 4.7% this year, up from its forecast of 4.3% of six months ago

The Institute for Macroeconomic Analysis and Development (IMAD), the government's economic think-tank, projects that Slovenia's gross domestic product will grow by 4.7% this year, up from its forecast of 4.3% of six months ago. Inflation is meanwhile expected to level off at 2.2%, down from 2.7% projected in the autumn.

Exports were one of the major boosters of last year's GDP growth of 5.2%. It is expected that exports will continue to grow at a rate of 9% to 10% this year, IMAD director Janez Sustersic told the press on Thursday, 5 April as he presented the Spring Report.

"This is because global economic growth is not easing. What is more, Slovenia's share on these markets is increasing every year, which maintains high export growth," Sustersic said.

The most important engine of growth in 2006 was investment, which expanded by 12% in real terms on the back of lower inflation and subsequently lower interest rates, as well as high spending on road infrastructure and housing.

IMAD expects investment growth to amount to 6% or 7% over the coming two years. Households are projected to spend 3.8% more than last year, with the figure to level off at 3.5% in the subsequent years.

According to Sustersic, this projection is underpinned by lower income tax and the expected growth in employment. The Spring Report also envisages annual real wage growth to the tune of 3% and ILO-based unemployment rate of 5.7%.

IMAD has also upgraded the outlook for 2008: the economy is expected to expand by 4.4%, 0.2 percentage points more than forecast in the autumn, while inflation is to accelerate to 2.5% and remain at that level over the medium term.

In the subsequent years GDP growth is expected to stand at between 4% and 4.5%. Sustersic said that the growth rates would depend foremost on reform measures and infrastructure projects.

If growth is to exceed 5%, the pace of reform will have to accelerate, especially on the labour market, investment in research and innovation.

The IMAD spring forecast serves as a guidance for the budget. Finance Minister Andrej Bajuk said the figures were a good and realistic basis for the budget, but he believes GDP growth could yet be faster considering that there are no signs of a slowdown in Slovenia or in Europe.

Source: Slovenian Press Agency STA

Author: STA, Slovenian National Press Agency