UPDATE 1-Slovenian exports soar but bad loans feed bailout fears

Fri Jun 7, 2013 7:44am EDT

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* Exports up 9.8 percent year-on-year

* Unemployment at 20-year high; bad loans rise further

* Bond yields rising

By Marja Novak

LJUBLJANA, June 7 (Reuters) - Exports in Slovenia rose almost 10 percent year-on-year in April, data showed on Friday in a rare sign of economic strength in the euro zone country which is struggling to avert a bailout.

However, bad loans in local banks - the root of the government's problems - inched up in the first four months of the year, and unemployment hit a 20-year high of 11.1 percent in the first quarter.

Monthly export growth of 9.8 percent was the highest since August 2011, the state macroeconomic institute said. Exports in the first four months rose 3.5 percent.

Bad loans rose by 185 million euros ($244 million) but their rise was some 25 percent lower than in the same period last year, the institute said.

Local lenders, most of them state-owned, are saddled with some 7 billion euros of bad loans, drawing comparisons with Cyprus and its need for a bailout.

The export rise "will help the economy although I expect export growth to slow down a bit in the coming months," said Saso Stanovnik, chief economist at investment firm Alta Invest.

"Exports will not be able to entirely offset the fall of domestic consumption so I believe the economy will fall by some 2 percent this year and by up to 0.5 percent in 2014," he added.

The government hopes the economy will grow 0.2 percent in 2014 after an expected fall of 1.9 percent this year.

Slovenia exports 70 percent of its production, mostly to other European Union states.

The European Commission gave the country until 2015 to bring its budget deficit to below 3 percent of GDP. This year's budget gap is expected to widen to 7.9 percent of GDP as the state will need to inject capital into local banks to keep them afloat.

The country bought time in May by raising $3.5 billion by selling bonds. It will have to raise more in the first quarter of 2014 before a 1.5 billion euro bond expires on April 2.

The yield for the benchmark 10-year euro bond has continued rising and reached 6.48 percent on Friday, up from 6.42 percent a day before, according to Reuters data.

"Yields are rising because the government has not yet acted on its promises to start privatisation and clean up the banking sector," said Mihael Zagrajsek of Raiffeisen Bank.

The government plans to sell 15 firms later this year but has yet to get an approval from parliament, while the newly established bad bank, which will take over most bad loans from state banks, is expected to become operational at the end of this month. ($1 = 0.7579 euros) (Reporting By Marja Novak; editing by Zoran Radosavljevic and Ruth Pitchford)

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