January 9 (SeeNews) - Slovenia's central bank has lowered its forecast for the country's gross domestic product (GDP) growth in 2018 and 2019 but said that projections remain favourable.
"Real GDP growth is expected to be 4.2% this year, 3.4% in 2019, and around 3% in 2020 and 2021," Bank of Slovenia said in December issue of its macroeconomic projections for the country released on Tuesday.
In its previous economic growth projection issued in June the central bank said Slovenia's GDP will expand by 4.6% in 2018 and 3.9% in 2019.
"The moderating pace of economic growth during the projection horizon will primarily result from a gradual shift into a more mature phase of the business cycle in both the Slovenian economy and the economies of major trading partners," the central bank explained.
It noted that economic growth will be broadly based over the medium term, and underpinned by both domestic demand and continued encouraging export activity.
"Private consumption growth will remain supported by favourable labour market developments and slightly higher wage growth, which will not outpace productivity growth significantly and as such, will not result in a notable deterioration of the external competitiveness of the Slovenian export sector."
Alongside the substantial internal resources, further credit growth and relatively favourable bank financing terms will allow the corporate investment cycle to continue, the central bank noted.
Slovenia's budget surplus will narrow from 7.2% of gross domestic product (GDP) in 2017 to 6.6% of GDP in 2021, with a slight deterioration in the terms of trade also expected to be a factor for the narrowing.
Labour market developments are expected to remain favourable, and will be reflected in slightly higher wage growth, and in continuing, albeit more moderate, employment growth, Bank of Slovenia predicted.
The inflation projections are in line with previous expectations, the central bank noted, forecasting growth of 2% in 2018 largely driven by external factors.
The risks related to the economic growth projections for Slovenia are on the downside, the central bank said, adding that they stem primarily from the external environment and are related to the deterioration of the global geopolitical situation and the escalation in protectionism, which could sharply reduce foreign demand growth with adverse consequences for the Slovenian export sector, a key pillar of economic growth.
“A sharp deterioration of the external environment situation would also be reflected in a decline of consumer and firm confidence, which would slow both investment activity and private consumption,” the central bank said.
According to Bank of Slovenia, the risks stemming from the domestic environment remain mostly on the upside. “They are related to government investment activity, which, in the wake of faster disbursement of EU funds and the intensified execution of major infrastructure projects and other investment projects, could outperform its current growth projections.”
Also, the risks accompanying the inflation projection are slightly on the upside, and primarily relate to developments in global oil prices and the potentially faster growth of labour costs.
In November, the European Commission said it has lowered its forecast for Slovenia's economic growth in 2018 to 4.3% from 4.4% projected in July, as external demand has grown less than previously expected. Slovenia's Real GDP growth is expected to slow to 3.3% in 2019 and 3.0% in 2020, the European Commission said in its Autumn 2018 Economic Forecast report.