Population 2.022 million
GDP 45.421 US$ billion
@rating
country
Business climate
assessment
| 2009 | 2010 | 2011(e) | 2012(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
1.1 |
1 |
-2.4 |
-1.5 |
|
Inflation (yearly average) (%)
|
1.8 |
1.8 |
2.1 |
2 |
|
Budget balance (% GDP)
|
-5.3 |
-5.6 |
-4.6 |
-6 |
|
Current account balance (% GDP)
|
-0.3 |
0.1 |
0.8 |
1.7 |
|
Public debt (% GDP)
|
38.6 |
46.9 |
53.2 |
65.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Highest GDP per capita in Central Europe
- Diversified economic (automotives, domestic appliances, pharmaceuticals, tourism, financial services)
- Germany is the main trading partner (25% of exports)
- Member of the eurozone since 2007
WEAKNESSES
- Economy dependent on world trade, vulnerable to eurozone economic context
- Public sector finances weakened by an aging population
- Rise in unemployment since the crisis
Risk assessment
Sluggish growth
Slovenia went into recession in the second half of 2011. Activity contracted further in 2012 and will continue to shrink in 2013. The drivers of growth have been hit hard, domestically by deleveraging plans of the government and private companies, and externally by the contraction in European activity. Therefore, investment and household consumption decreased in 2012 (-9% and -3%). Exports also declined (-1%) as a result of the situation of the European partners (Italy accounts for 12% of exports) and the poor health of the automotive sector (32% of exports). Nevertheless, the trade balance contributed to growth due to the contraction in imports associated with lacklustre domestic demand. In 2013, growth will remain negative, private consumption will fall again due to government plans to cut the public deficit. This will be reflected in reductions in civil servant numbers and further wage cuts. The number of vacant posts has fallen noticeably, sign of a decline in investment, which will again curb growth in 2013. Furthermore, unemployment is rising and reached 12% in 2012 (6% in 2008). The trade balance will again support economic growth in 2013, in relation with domestic contraction as the European economy will remain depressed. Inflation rose slightly in 2012, in particular as a result of higher taxes on alcohol and tobacco. It will fall in 2013, due to weakening domestic demand and stagnating raw materials prices.
Very weak banking system
Slovenia’s private companies are suffering from high indebtedness since the 2000s (85% of GDP in 2012). These companies have to repay their debt in a context of a weakening domestic and European economy, which is affecting margins. The collapse of the construction sector materializes the difficulties of the private sector. In fact, this sector represents only 4% of GDP compared with 9% in 2009 and it has seen insolvencies at three of its major companies. The banking sector, mainly composed of publicly owned banks, is weakened by the rise in non-performing loans (24% of domestic banks’ loans in June 2012) and by the withdrawal of foreign banks subsidiaries as a result of the recession in eastern Europe. Indeed, the foreign banks reduced their exposure by $10bn in Q3 2012, at 21% of GDP. Meanwhile, the banks are under-capitalised, compelling the state to intervene regularly to support them. The banking system is expected to undergo restructuring in 2013 with the setting up of a bad bank in order to centralised doubtful assets and enable necessary recapitalisation. The cost to the State is estimated at 11% of GDP. In this context, the successful issue of 10-year Treasury Bonds for $2.25bn (5% of GDP) in October 2012, contrasting with the preceding under-subscribed issue in April, means that Slovenia will not need aid before June 2013. Slovenia’s fiscal position has worsened considerably since 2008 and consolidation efforts have come up against a lack of political consensus on the pension system and job market reforms. Public debt grew from 23% of GDP in 2008 to nearly 65% in 2013.
The current account balance has improved markedly, mainly due to a decline in imports, in line with flagging domestic demand. However, there is still a considerable need for external financing, due to the burden of paying off the debt. Foreign direct investment flows (2% of GDP) will remain subdued and cover only a very limited portion of financing needs. In this context, external debt, most of it private, will remain high in 2013, close to 120% of GDP. The countries refinancing capacity, even in the absence of exchange rate risk, could be limited by greater wariness on the part of foreign investors against a background of persistent sovereign risk in the eurozone.
Worsening political environment
Traditionally known for its stability, the political environment has deteriorated in the wake of the eurozone crisis. Early parliamentary elections were held in December 2011 for the first time since independence in 1991, following a parliamentary vote of no confidence on the pension and job market reforms. The center-right coalition, led by Mr Jansa, is unstable because the trade unions (which play a key role) continue to oppose changes to the welfare state. The December 2012 presidential elections confirmed the concerns of the population as the former, defeated Prime Minister, Borut Pahor (centre left) was elected President. The austerity measures have continued to discredit politicians and lead to a low participation rate (47%), two weeks after a large protest march in the streets of Ljubljana.
