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Slovenia Business Week no. 15: IMAD Head Says Upbeat Growth Forecasts Opportunity for Reforms

The government Institute for Macroeconomic Analysis and Development (IMAD) projects economic growth of 4.2% for this year, 0.2 percentage points higher than initially expected

The government Institute for Macroeconomic Analysis and Development (IMAD) projects economic growth of 4.2% for this year, 0.2 percentage points higher than initially expected. According to IMAD head Janez Sustersic, this is an opportunity to take economic policy measures that are urgent if growth is to be sustained over the coming years.

Presenting the IMAD spring forecast on Friday, 7 April, Sustersic said the reforms planned by the government should be implemented now, as any adverse short-term effects will be less painful in a period of fast growth. "If we can succeed with that, growth rates could approach 5% in the coming years," he said.

IMAD has made its spring projections on the basis of existing economic policies and budgets for 2006 and 2007; the effects of the planned measures have not been considered, Sustersic explained.

According to Sustersic, the revised projection is mainly a result of upgraded growth in investment spending. Most notably, the volume of investments in motorway construction is 30% higher than last year, housing investment is soaring and investments in the corporate sector are upbeat.

It is furthermore based on solid growth projections for Slovenia's main trade partners, which is expected to increase export growth to 8.2% this year, more than IMAD projected in the autumn report. On the other hand, private consumption is expected to grow only moderately.

The report is also optimistic about the outlook for employment. Survey employment is to remain below 6.5% and the registered unemployment rate edge to below 9.5%. At the same time, Sustersic said, wage growth is projected to lag behind productivity gains by a similar margin than last year (0.9 percentage points).

IMAD also slightly upgraded its inflation projections, with consumer price growth anticipated to stand at 2% this year. For the subsequent years, inflation is to hover at just above 2%, said Sustersic, who pointed out that competition is preventing GDP growth from having too big an impact on inflation.

Whereas the inflation outlook for this year is stable, the forecast for 2007 does carry some risks, Sustersic said. If prices are rounded up when the euro is adopted on 1 January 2007, and household electricity prices soar due to energy market liberalisation, inflation could be 0.5 percentage points higher than projected.

Source: Slovene Press Agency STA

Author: STA