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The growth returns… as the reforms continue… and the government falls

The Growth Returns…

Slovenian economy grew by 2.1 percent in the last quarter of 2013 for the first period after two years of contraction. The overall decline of the gross domestic product in 2013 was thus lower than expected and reached -1.1 percent. The International Monetary Fund’s (IMF) World Economic Outlook for 2014 published in early Spring revised its previous pessimistic projections for Slovenia. IMF’s Spring’s outlook forecasts a modest growth of 0.3 percent in 2014 while previous reports projected a contraction of -1.1 percent. According to IMF’s analysts the main reason behind the improved forecasts was the country's overall recovery in the Eurozone. The latest European Commission’s projection is even more optimistic. In early May EC forecast a 0.8 percent growth of the Slovenian economy in 2014. The Institute of Macroeconomic Analysis and Development of the Republic of Slovenia (IMAD) similarly changed its forecast and now projects a 0.5 percent growth in 2014. IMAD, however, sees the main drivers behind the Slovenia’s growth in the country’s strong exports and slower decline in domestic consumption. In 2013 Slovenian exports grew by 2.9 percent. In the first two months of 2014 exports rose by 6.7 percent in comparison to the same period in 2013.

…As The Reforms Continue…

In April the government of the Republic of Slovenia approved the reform program for the next two years, prepared in accordance with the EU guidelines and priorities. In 2013 the government successfully formed The Bank Asset Management Company (the so called “Bad Bank”) as its main tool in restructuring the financial sector. In December 3.2 billion euros of bad claims were transferred to the “Bad Bank”. The government also recapitalized the first two banks. At the same time the government has begun to privatize the state’s remaining stakes in the businesses. In 2014 and 2015 the government will continue to focus on overhauling the banking sector and corporate deleveraging and restructuring. After failing to introduce a new real estate tax the government will have to prepare a new set of fiscal measures. A set of measures to boost economic growth and restructure the public sector should also be launched. These tasks will have to be carried out no matter who will lead the government in Slovenia in the coming years. However, the reforms measures set so far are already bringing results. The effects of the stabilization of the Slovenian banking system are mainly reflected in the decline in the 10-year government bond yield. The international investors showed high interest in Slovenian bonds issued early this year. Dun and Bradstreet also reports that the credit ratings of Slovenian firms on average improved in 2013 – for the first time since 2007.

…And the Government Falls

The government stepped down in early May after the Prime Minister Alenka Bratušek lost the leadership of her Positive Slovenia party in April. Slovenia heads now for early elections: Bratušek estimated that the elections could take place as early as late June. She also stressed that the country’s finances will remain stable despite the political crisis. In 2013 the government led by Bratušek helped Slovenia avoid the international bailout and started a set of reforms. Positive Slovenia is the strongest member of the four party coalition which has led Slovenia since early 2013. In April the leadership of the party was regained by its first president Zoran Janković. The controversial Janković, the present mayor of Ljubljana, is embroiled in several corruption scandals.