Recently Released Market Study: Slovenia Business Forecast Report Q4 2012

Recently published research from Business Monitor International, "Slovenia Business Forecast Report Q4 2012", is now available at Fast Market Research

by Bill Thompson

(WireNews+Co) - Boston, MA - 24 October 2012

On the back of a sustained deterioration in economic activity over the course of 2011, we expect the Slovenian economy to experience a further economic contraction in 2012.

The onset of aggressive fiscal austerity, while positive for sovereign creditworthiness, will deal a harsh blow to an already weak private sector, defined by ongoing debt deleveraging, rising unemployment and fragile banking sector dynamics.

Core Views

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Support from exports will also be limited by the ongoing economic malaise across the eurozone. Slovenia's five-party governing coalition has had a relatively strong first few months in power, managing to pass an aggressive fiscal austerity package through parliament. The government's mediumterm challenges nonetheless remain sizeable, particularly as the domestic economy is unlikely to experience any signs of recovery until 2013.

We expect public opposition to fiscal austerity to continue to build, which could place increased strain on the political cohesion of the governing coalition. Moreover, the government will find it particularly difficult to achieve its divergent policy goals of deficit reduction and economic growth restoration.

The onset of aggressive fiscal austerity this year, alongside rising unemployment and another year of economic contraction, will see to it that the current account deficit narrows in 2012. Export volumes will be hit by depressed economic activity across the eurozone. However, we believe the impact of domestic policy on import demand will be greater.

We do not envisage a return to the size of current account deficits witnessed prior to the global financial crisis over the course of our forecast period owing to scarcer foreign capital inflows. Major Forecast Changes On the back of the weak economic base in Q411, the onset of greater fiscal austerity this year, and depressed economic activity across the eurozone, we have been prompted to lower our medium-term growth forecasts for Slovenia.

Whereas previously we forecast positive growth of 0.3% in 2012, we now envisage an economic contraction of 0.7%. In 2013, we now forecast real GDP growth of 1.6%, down from 1.7% previously. Key Risks To Outlook The eurozone economy presents a major threat to our economic growth forecasts for Slovenia. Should the downturn in the common currency bloc prove more pronounced than currently expected, this would have a severely negative effect on Slovenian growth.

This is particularly the case given the weak state of the domestic economy in Slovenia, as well as its heavy trade integration with countries such as Germany, Italy and Austria. The Slovenian government's fiscal austerity strategy presents sizeable threats to economic growth.

Should the government push too hard on the fiscal brakes, it could lead to an even greater decline in domestic economic activity, which in turn could make the government's job of cutting expenditures and raising revenues even more difficult. Signs of a greater economic downturn this year wo

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