February 4 (SeeNews) - The European Commission said on Thursday it has slightly lowered its projections for Slovenia's economic growth to 2.5% in 2015 and 1.8% in 2016.
In November, the European Commission said it sees Slovenia's GDP expanding by 2.6% in 2015 and by 1.9% in 2016.
In its Winter Forecast report the Commission said that, after a solid performance in 2015 when growth was driven by net exports and private consumption, Slovenia's economy is expected to moderate in 2016 mainly due to lower public investment, which is forecast to revert to the historical average after the exceptional 2015.
Domestic demand, particularly private consumption and private investment look set to become the main growth drivers in 2016 and 2017, with growth expected to pick up to 2.3% in 2017, the Commission noted.
Net exports are expected to deliver about one third of total GDP growth in the first half of 2016, and by the middle of 2017 economic growth is expected to be almost fully driven by domestic demand.
The general government deficit is projected to gradually decline thanks to the positive cyclical conditions, the Commission also said.
In 2015, the general government deficit is projected to amount to 2.9% of GDP. It is seen to further decline to 2.4% of GDP in 2016, on the back of a large drop in public investments following the ending of the drawdown period of EU funding for 2007-13, and buoyant tax revenues.
In 2017, under a no-policy-change assumption Slovenia’s deficit is expected to decline further to 1.9% of GDP.
Overall risks to public finances over the forecast horizon are tilted to the downside as uncertainty remains regarding the expenditure linked to migration, the Commission explained.
In the final quarter of 2015, Slovenia experienced a large influx of migrants, equating to some 18% of the population, transiting through the country. The migrant related expenditure in 2015 was partially met by exceptional payments from EU funds.
The authorities expect these flows to continue in 2016 and now estimate that the expenditure will be some 0.3% of GDP higher than what was included in the Draft Budgetary Plan. They expect this to be largely offset by payments from EU funds and international organisations, resulting in a net effect of 0.1% of GDP in 2016. However, no net impact has been included for 2017, the Commission added.
Furthermore, the ongoing work out of non-performing loans poses risks to the government deficit through the activities of the Bank Asset Management Company (BAMC) and the possibility of an adverse impact from the resolution in the first quarter of 2016 of two financial institutions currently in wind down.
Slovenia's debt-to-GDP ratio is seen at 83.5% in 2015, but is expected to fall to 79.8% and 79.5% of GDP in 2016 and 2017 respectively.
The country's gross domestic product (GDP) rose by 2.5% on the year in the third quarter of 2015. In 2014, Slovenia's GDP rose by a revised 3%.