ANALYST FORECAST – Slovenia’s GDP Seen Falling Sharply in 2009 After Steep Rise This Year

Slovenia’s gross domestic product (GDP) grew by 3.8% year-on-year in the third quarter of 2008, down from an annual increase of 5.5% in the previous quarter, due to slowing domestic expenditure and external trade, the country’s Statistics Office said on Wednesday. Slovenia's economy grew by 7.5% in the third quarter of 2007.

In the first nine months of 2008, the GDP increased by 5.0% compared to the year-ago period.

The Statistics Office said that most of the GDP categories recorded slower growth in the third quarter. The biggest slowdown was observed in gross fixed capital formation, exports and imports, it added.

“Growth is still quite high [...] having in mind the significant cooling of the economy and worse financial results [in the third quarter] than in the previous two quarters or last year,” Franci Tusek, an analyst with local brokerage house Medvesek Pusnik, told SeeNews.

“Having in mind the current situation on our bourse, it is even a very good result,” Tusek added.

Amid steep losses on global markets the blue-chip SBITOP index and the broader 15-share SBI20 index of the Ljubljana Stock Exchange have lost some 63-65% each since the end of last year when companies enjoyed hefty gains.

Worsening economic conditions in the EU, Slovenia’s major trade partner, will hit the country’s economy hardest in the last quarter of 2008 and in the first two quarters of 2009, analysts said, but added despite this 2008 economic growth will remain at a high level.

Tusek expects economic growth of about 3.0% in the fourth quarter of 2008 and some 4.5% for the whole year. “It is a very, very good result taking into account the rise in the whole 17-year history of Slovenia,” he added.

Tusek expects the situation to worsen in the first two quarters of 2009 when he projects economic growth of some 2.0% or even lower. “For the whole of 2009 I expect about 3.0% – 3.5%,” he said, adding that there may be an acceleration of the economy in the second half of 2009.

Tusek said that probably the government will continue the implementation of infrastructure projects to support the local economy until economic conditions stabilise.

Darko Kovacic, an analyst at Maribor-based Raiffeisen Banka, expects growth to slow down in the fourth quarter and to be around 3.0% or even a bit lower. He expects about 4.5% for the whole of 2008.

“The first and second quarters of 2009 will be at the level of the last quarter of 2008,” Kovacic told SeeNews.

“Next year I expect growth of between 2.0% and 3.0%, 3.0% maximum,” he said, adding that all depends on how long the crisis lasts.

Kovacic said that if there is serious economic problems and negative growth in Slovenia’s main economic partners, like Germany, Italy and France, Slovenian companies will see sales falling.

He added that for local companies financing difficulties are also a very important factor. There is enough money on the market but wary banks are afraid to lend as it is not known which company will go bankrupt due to the crisis, Kovacic said

Measures that companies can take in these hard times are cost cutting and exporting to new markets, Kovacic said.

Joze Mencinger, researcher at the Economic Institute of Ljubljana’s Faculty of Law, gave the most pessimistic forecast among the analysts polled by SeeNews, predicting negative economic growth next year.

Although for the time being there were no signs that economic growth would be negative in the fourth quarter, it could happen as the Slovenian economy is now closely connected to EU markets and orders are falling significantly, Mencinger said.

“I expect the growth to be lower [in the fourth quarter] than in the third quarter [...] I would say about 1.5%,” he added. He expects growth of a bit more than 4.0% for the whole of 2008 as it was very high in the first two quarters.

“The main factors are falling numbers of orders and difficulties in obtaining credit,” Mencinger said, adding that the main sectors that will be affected are those connected to the automobile industry in Europe and household appliance production.

Mencinger expects much lower GDP growth in Slovenia next year. “In all cases it [the growth] will be negative in Europe. I expect it to be negative in Slovenia as well [...] or close to zero,” he added.

In October the Slovenian government's Institute of Macroeconomic Analysis and Development (UMAR) said it expects Slovenia's GDP to grow by 4.8% this year and 3.1% next year. Slovenia posted economic growth of 6.8% in 2007.

UMAR said on Wednesday it plans to revise its economic growth forecasts by the end of the year.

“The available data about economic activities recently, expectations for the coming months and forecasts for the conditions in the international environment show a need for an update of the autumn economic growth forecasts,” Bostjan Vasle, head of UMAR, said in a statement.

The Alpine country, which gained independence from socialist Yugoslavia in 1991, joined the EU in 2004, becoming its first South-East European member. In 2007 it became the 13th member of the eurozone.