The government Institute for Macroeconomic Analysis and Development (IMAD) has upped its GDP growth projections for this year by a notch to 3.9% in its Autumn Report. At the same time it downgraded slightly the projection for 2005, from 4.1% to 4%.
The report, which the government looked into on Thursday, projects an easing of inflationary pressure, so by the end of the year annual inflation could touch the average inflation in the EU.
Coordinated macroeconomic policies and increased competition after EU entry have cushioned the impact of rising oil prices on consumer prices, so the goal of reaching the Maastricht criteria for inflation in the first half of 2006 looks feasible, the report states.
Despite the unexpected rises in oil prices, the projected inflation changed little since the Spring Report: it is to top 2.7% this year and 2.3% in 2006 and 2007.
According to IMAD, the measures which are to be taken in the run-up to the euro changeover will reduce the risk of price hikes accompanying the change of legal tender, which is scheduled for 1 January 2007.
The main motor of growth will be buoyant exports, which are projected to grow at a rate of 8.6% in 2006. With imports growing much slower, at only 6%, foreign trade is expected to contribute 1.4 percentage points to cumulative GDP growth.
On the other hand, domestic demand will be much weaker this year than it was in 2004 (2.4% as opposed to 4.6%) on account of weaker investment spending. However, IMAD expects housing construction to gather pace by the end of the year.
Real growth in private consumption, projected at 3.6% this year, will increase, but it will not exceed overall GDP growth and therefore remain sustainable in macroeconomic terms.
For next year, IMAD expects the international business climate will improve, which would further boost exports to most biggest trade partners. Yet due to the exceptionally high growth this year, exports are only to grow year-on-year by 7.8%.
Domestic consumption is set to grow by 4.5%, mostly due to ongoing robust expansion of housing construction. Private consumption is expected to slow down in 2006 to 3.1%.
Tentative projections for 2007 are on par with projections for 2006: GDP growth at 4%, export growth of 8.1% and the expansion of private consumption by 3.1%.
As a result of robust growth, IMAD expects a relatively upbeat labour market with faster job creation and falling unemployment.
The projections are based on the premise that growth in Slovenia's most important trade partners will be somewhat lower than last year, but pick up again in 2006.
The calculations take into account average oil prices of US$ 58 per barrel this year, US$ 68 in 2006 and US$ 66 the year after that. According to IMAD, the dollar-euro rate is to remain stable.
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