Too Optimistic?

07. 04. 2011

Too Optimistic?


The inflation forecast has meanwhile been raised to 2.7% for this year and 2.3% in 2012 due to higher fuel and food prices.Only in 2013 is inflation projected to drop below 2%, the head of Banka Slovenije's analytical centre Damjan Kozamernik told the press.The projections are based on the assumption that average oil prices will stand at around US$110 a barrel in 2011, which is slightly below current figures but up 26 dollars compared to previous projections.However, inflation figures will also depend on the government economic policies and the situation on the labour market, Banka Slovenije governor Marko Kranjec added."There are still many macroeconomic imbalances," Kranjec pointed out. "We have a big budget deficit, which will have to be reduced, but there are not many investments at the moment."




The governor currently sees no chances for boosting these investments. "Here the role of economic policy will be crucial," he stated.Domestic demand will continue to lag behind GDP growth, whereas foreign demand is expected to swell by 7% this year and 6% in 2012, according to Kozamernik.Exports will exceed imports, creating a boost to economic growth and reducing the current account deficit.The latter should stand at 1.6% of GDP this year and drop below 1% in two years time.Gross investments into fixed assets might record a negative growth this year, mostly due to the crisis in the construction sector. Meanwhile, investments into equipment and machinery are already on the increase, Kozamernik said. Stocks will not contribute as much to GDP this year.Government expenditure will decrease in real terms, mostly on account of a restrictive policy of employment in the public sector.




According to Banka Slovenije, the most problematic area will be the labour market. The economy will not grow fast enough to reduce unemployment, which is expected to rise this year and remain flat next year before dropping in 2013.Currently, export-oriented companies are in the best position while construction companies are in the worst.Banka Slovenije seems to be rather conservative in its economic growth forecast for 2011. The Economic Institute of the Ljubljana Law School (EIPF) in March projected a 2.7% economic growth, while the Institute for Macroeconomic Analysis and Development (IMAD) expects a 2.2% growth. Projections by other institutions also revolve around 2%.The outlook for 2012 is more optimistic but nobody expects growth to return to pre-crisis levels, Kozamernik said.

Source: Slovenia Times