UPDATE 2-Slovenian growth outlook darkens ahead of privatisation vote

Wed Jun 19, 2013 8:18am EDT

* Central bank official warns of possible GDP contraction in 2014

* Parliament to vote on privatisation Friday

* Vote a litmus test of government's anti-crisis efforts

By Marja Novak

LJUBLJANA, June 19 (Reuters) - Slovenia's economy could keep shrinking next year, a central bank official said on Wednesday, making it harder for the country to avoid becoming the next euro zone member to succumb to a bailout.

The government is banking on a return to growth in 2014 to ease pressure on an economy teetering under the weight of billions of euros of bad loans in state-controlled banks.

Despite making up only a tiny portion of the euro zone's economy, Slovenia's efforts to clean up its banks are being watched closely by investors, wary of a repeat of the turmoil seen in Cyprus.

Seeking to bolster the state's coffers, lawmakers will vote on Friday whether to loosen their grip on the economy by selling publicly-owned firms such as the country's number two bank, its national airline and biggest telecoms operator.

But the government may have to concede that Slovenia will remain mired in recession for longer than it hoped, when it updates growth forecasts on the same day.

"Next year we can expect stagnation or maybe a small fall (in GDP)," Damjan Kozamernik, the head of the Bank of Slovenia's analytics and research centre, told Reuters on the sidelines of a business conference.

The government is currently targeting growth of 0.2 percent next year, although the European Commission last month forecast the economy would shrink by 0.1 percent in 2014.

The government is due to issue its latest GDP forecast for 2013 to 2015 on Friday.

"In 2015 we should feel the positive effects of fiscal consolidation and other decrees that are being taken," Kozamernik said, adding though that in the short term such steps would slow growth.

He said 2015 growth could be 1 percent or more - also undercutting the central bank's latest forecast, from April, which pegged 2014 growth at 0.5 percent and 2015 growth at 1.4 percent.

PRIVATISATION LITMUS TEST

Shielded by years of rapid growth driven by exports, successive Slovenian governments shied away from selling state assets after independence from Yugoslavia in 1991, leaving some 50 percent of the economy under state control.

But when exports hit a wall with the onset of the global crisis, soaring bad loans and a deep recession exposed a culture of cronyism and mismanagement.

The parliamentary vote at the end of the week will see lawmakers being asked to back the sale of 15 state-owned firms such as second largest bank Nova KBM, Telekom Slovenia , Ljubljana airport and Adria Airways.

Analysts say the cut-price offers they are likely to attract will test the government's resolve to sell, although bill is expected to win approval after the second largest party in the coalition, the Social Democrats, said most of its MPs would vote in favour despite their general opposition to the sell-off.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.