October 15, 2019 / 2:13 PM / a month ago

Unfavorable conditions spilling over to Slovenia, central bank says

LJUBLJANA (Reuters) - Unfavorable conditions in the international environment “have started to noticeably spill over to the Slovenian economy”, the Bank of Slovenia said on Tuesday, adding domestic factors remain relatively favorable.

“High growth of wages, which exceeds the growth of productivity, is worsening cost competitiveness of the Slovenian economy but at the same time increasing domestic demand,” the central bank added.

Growth in the third quarter remained weak after the economy grew by only 0.2% in the second quarter from the first amid lower global economic growth in the first half of 2019 due to “trade conflicts and political tensions”, the bank said.

Slovenia exports about 80% of its products, mainly to other EU states. Main exports include cars, car parts, pharmaceuticals and household appliances.

It said export growth this year had been boosted mainly by pharmaceuticals to Switzerland but had slowed down in other sectors. Slovenia’s pharmaceutical firm Lek, which is one of the country’s largest exporters, is a unit of Swiss Novartis (NOVN.S).

Last week the statistics office said exports of goods were up by 8.9% year-on-year in the first eight months of this year compared to growth of some 11% in the same period last year.

The bank said the state budget continued to run a surplus but added “the increase of macroeconomic risks demands a prudent macroeconomic policy which includes preparations of the state budgets for 2020 and 2021”.

Parliament is debating budget proposals according to which Slovenia should run a surplus of about 1% of GDP in 2020 and 2021 versus a surplus of some 0.8% of GDP expected this year.

Reporting by Marja Novak; Editing by Alison Williams

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