Erste sees Slovenia's GDP shrinking 6.6% in 2020 due to coronavirus

April 3 (SeeNews) - The Slovenian GDP is expected to contract by 6.6% this year with pronounced risks on the downside as the coronavirus outbreak is taking a heavy toll on the economy, Erste Group said on Friday.

"Lock-down measures introduced in order to suspend further virus spread would take significant hit on the domestic economy, which was the main growth pillar in recent period. We see private consumption being especially affected, as worsening labour market conditions and declining consumer sentiment would present significant drag on consumption profile," Erste Group said in its latest Macro Outlook report on Slovenia.

In addition, dented external demand amid the coronavirus outbreak will have a strong negative impact on Slovenia's exports, with the country being strongly integrated in international trade, the report said.

Erste sees Slovenia's GDP contracting by 1.4% in the first quarter, by a further 12.7% in the second quarter, by another 8.0% in the third and by 4.1% in the final three months of 2019, all in annual terms.

Inflation is expected to decelerate as demand-side pressure should take some hit by the coronavirus in coming months, while cost-side pressures should reflect lower oil prices, Erste noted.

"Bottom line, we see the inflation movements largely decelerating from 2% mark in coming months amid stabilizing food prices and weakened demand, with average FY20 CPI expected around 0.4%," it said.

On the fiscal side, the stable budget position kept in the recent years is expected to deteriorate, with the government already announcing a 3 billion euro ($3.2 billion) stimulus package, equivalent to some 6% of GDP, to preserve jobs and help businesses survive the current crisis.

"Fiscal side developments would be shaped by economic slowdown and fiscal response to COVID-19, in that sense we would expect that budget would go significantly in red in 2020," the report said, adding that public debt is seen back to the upside trajectory and moving above the 75%/GDP mark.

Following are the Erste Group forecasts for Slovenia:

($=0.925 euro)