In August 2012 both S&P and Moody’s downgraded Slovenia, while S&P placed the country to credit watch just before the first round of the presidential election in November. In the second round on 2nd December 2012 Borut Pahor won by more than 67% over the incumbent Danilo Türk. Borut Pahor formerly headed the government from 2008, but he failed to carry out the necessary reforms until the current Prime Minister Janez Janša’s coalition overcame in early general elections at the end of 2011.
The
country’s economic situation is difficult. After 16 years of convergence
Slovenia is almost the only country which could not recover from 2008 and still
shows sharp divergence form the European Union.
Chart 1. GDP convergence in Central
European and Baltic economies (1990-2011)
The
disappointing process is a result of the following factors.
Total
gross fixed capital formation forecasted to drop from 28.8% of the GDP (2008)
to 17.1% by 2012. On the other hand the average rate of Hungary, Czech
Republic, Poland, Slovenia and Slovakia in 2012 is 19.9%, thus the difference
is only 2.8 percentage point. The picture is a bit even brighter if we look at
the details. Investments in dwellings and other buildings hit their peak just before
the crises, while investments in machinery declined much less than the average
in Central Europe, and from 2010 to 2011 the rate could even grow. All these
considered, the rate of investments in Slovenia is low, but the core problem is
not with that.
As
in all Central European country, international trade is very important in
Slovenia too. The total export of goods and services reached 72.4% of the GDP
in 2011. External trade of goods and services has always been balanced during
the past 10 years, the biggest deficit was 3.22% of the GDP in 2008, while the
highest surplus was 1.44% in 2009. On 1st January 2007 the country
has introduced the Euro. In the following 3 years there has been a 10% real
appreciation in real effective exchange rate deflated by the unit labour cost,
but from 2009 it remained in the same level securing the economy’s competitiveness.
Although
the unit labour cost stayed in the same level, domestic demand could not swing
back after the main shock in 2009, as in other economies it could be
experienced. In fact, domestic demand in Slovenia constantly decreases from
2009. In 2012 it forecasted to reach the same level as it was in 2006. The
reason behind this is most probably the shrinking number of employed people.
To read the full text click on the link below.
http://www.icegec.hu/download/news/nom_december_2012.pdf
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