The Republic of Slovenia was formed in the northern part of what was formerly Yugoslavia and was established with relatively little violence. The present country is bordered by Austria, Croatia, Italy and the Adriatic Sea. Slovenia was the first Central European country to be admitted to the European Union in May 2004 and joined the euro zone on January 1, 2007. It was initially one of the most prosperous countries.
Following the 2009 recession, Slovenia rebounded until late in 2011. The economic crisis that spread through Europe in 2011 and 2012 brought about a downturn in Slovenia’s economy. The core issue has been the failure of the country’s state owned banks to manage the growing weight of bad loans making up 13% of outstanding indebtedness and debts. The government initiated the first round of strong austerity measures to revamp the banking system and reduce the country’s debt.
By the end of 2012 several economic indicators showed that there are still serious problems that will take time to resolve. Slovenia’s gross national product (GDP) contracted 2.3%. Compounded by stagnant exports and lack out outside capital, investment was down 9.3%. At the same time, government consumption was down 4.6%; and household consumption was down 2.9%. Slovenia was clearly in a second recession. Unemployment at the end of 2012 was at its highest level since 1999. At the end of January 2013, unemployment stood at 13.6% and is expected to continue rising during the year.
While the International Monetary Fund (IMF) has questioned the effectiveness of the second round of austerity measures and believes that Slovenia may need as much as 3 billion euros by the end of 2013, the country’s central bank firmly wants to avoid a bailout. The government believes that the austerity measures now in place will work and that Slovenia’s economy will rebound.
Slovenia is also handicapped by the absence of outside investment capital that would help bring the country out of recession by creating new businesses and new jobs. The IMF has suggested that the Slovenian economy will need 1 billion euros in new capital to create the needed businesses and jobs.
Modest recovery is expected in 2014. GDP is projected to rise to as much as .5%. The strength of recovery depends on the success of the Slovenian government’s austerity initiatives and whether or not the country is finds itself in the position of having to accept a bailout.
The likelihood of the need for a bailout by the end of 2013 is uncertain at this point. Slovenia would prefer to stay away from having to be bailed out and is relying on strong austerity measures to reduce its debt and revamp the banking system. It is encouraging to note that the country’s debt at the end of 2012 was 55% of GDP — one of the smallest percentages among the Central European nations.
The more promising key to rebuilding Slovenia’s economy is outside capital investment from other countries. Innovative companies, notably technology firms, investing in Slovenia’s future may be the most effective means of building stable, long-term economic growth. The government needs to make investment in the Slovenian economy financially attractive to companies operating in Europe and around the world. While this type of initiative involves fiscal risks for the fragile Slovenian economy, the potential benefits more than exceed the risk.
Even though there is a great deal of concern in European financial and media circles, Slovenia is determined to avoid being the next country to require bailing out
