VZCZCXRO2480
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHLJ #0086/01 0861632
ZNR UUUUU ZZH
P 271632Z MAR 09
FM AMEMBASSY LJUBLJANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7235
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 LJUBLJANA 000086 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON SI
SUBJECT: SLOVENIA: PROJECTED GDP GROWTH TUMBLES SHARPLY 
 
REF: A. LJUBLJANA 60 
     ¶B. LJUBLJANA 61 
     ¶C. LJBULJANA 78 
 
Summary 
-------- 
¶1. (SBU) As recently as March 19, our government and business 
contacts assured Emboffs that they will be able to weather 
the crisis if the global economy is able to turn around this 
year.  However, as many contacts have told Emboffs, "As 
Germany goes, so goes Slovenia."  Based on Germany's falling 
economic numbers, on March 24, the Slovenian government's 
Institute of Macroeconomic Analysis and Development (IMAD) 
revised projected GDP growth for 2009 down to -4%.  This 
revision is a huge shock to Slovenia, as IMAD had announced 
an estimated 2009 GDP growth rate of  0.6 only 3 weeks 
earlier.  However, the underlying numbers that makeup the 
overall picture of the Slovenian economy remain fairly 
robust.  Unemployment, while rising, is still low especially 
for the Eurozone at 4.7 percent.  The government is focused 
on fiscal and other measures it can take while trying to stay 
within the EU policy boundaries.  The major uncertainty 
regarding the Slovenian economy is the amount of debt and the 
value of assets held by majority state-owned companies, 
particularly banks.  End Summary. 
 
Looking at the numbers 
---------------------- 
¶2. (U) Prompted by a proliferation of media reports on the 
fragile nature of the economies of Central and Eastern 
European countries, Emboffs compiled data from a number of 
sources to establish the most current and accurate snapshot 
of the Slovenian economy.  In addition to IMAD, sources 
include the Public Agency of the Republic of Slovenia for 
Entrepreneurship and Foreign Investments (JAPTI), the 
European Commission (EC), the Slovenian Chamber of Commerce 
and Industry, annual statements from the Central Bank of 
Slovenia, the Slovenian Statistics Office, the CIA Factbook, 
and conversations with officials from the Ministries of 
Finance and Economy. 
 
GDP growth finally slides into the negative 
------------------------------------------- 
¶3. (U) In 2008 Gross Domestic Product (GDP) real change fell 
to 4.0% from 2007's 6.8%.  After years of impressive growth, 
4th quarter 2008 was the first quarter with negative growth 
since 1993.  Slovenian officials still believed growth would 
pick back up in 2009 and in February, IMAD announced that 
Slovenia's real GDP growth rate in 2009 would be 0.6%.  The 
EC confirmed that estimate.  However, on March 24, IMAD 
issued a press release revising that number down to -4%. 
 
¶4. (U) As a baseline, GDP in Slovenia is approximately 37B 
Euro (USD 50B).  However, the CIA Factbook puts 2008 GDP 
purchasing power parity at 61.8B USD.  GDP per capita in 2008 
was approximately 28,000 USD, which is 93% of the EU average. 
 Services represent over 63% of Slovenia's GDP, industry 
accounts for about 28%, construction 7% and agriculture only 
2% of GDP. 
 
Budget & Account Balances - weaker, but not scary 
--------------------------------------------- ---- 
¶5. (SBU) While Slovenian Minister of Finance (ref A) and the 
Minister of Economy (ref B) both said that Slovenia would 
attempt to keep its budget deficit under the 3.0% EU 
Maastricht criteria in 2009, the European Commission interim 
forecast in January predicted that the budget deficit would 
increase to 3.2% and then come back down to 2.8% in 2010. 
Given IMAD's -4% GDP growth announcement, it seems inevitable 
that the deficit will rise above 3%.  In 2008, Slovenia ran a 
budget deficit of -0.9% of GDP after having had a budget 
surplus of 0.5% the prior year.  Exports account for 70 
percent of GDP. 
 
¶6. (U) In 2007 the current account balance, as a percent of 
GDP, was -4.0%.  According to IMAD's February figures, the 
current account deficit widened in 2008, posting slower 
growth in the second half of the year.  The deficit totaled 
2.2B Euro for the year, 5.8% of GDP.  Reflecting the prior 
sluggish but positive GDP growth, the EC predicts a current 
account balance for Slovenia of -5.8% of GDP in 2009, -6.0% 
in 2010. 
 
¶7. (SBU) Ministry of Finance officials told Emboffs on March 
19 that they estimated non-performing loans to be about two 
percent of total assets in Slovenia, although they could be 
as high as five percent (ref C).  However, neither we nor 
anybody else can verify this figure given the nature of 
Slovenia's relatively opaque, majority state-owned banking 
system. 
 
LJUBLJANA 00000086  002 OF 002 
 
 
Trade-dependent Slovena is very anti-protectionism 
--------------------------------------------- ----- 
¶8. (U) As governmnt officials repeatedly stress, goods and 
servics exports make up 70% of Slovenia's GDP.  According to 
the Central Bank, Slovenia's trade balance in November 2008 
was -247.3M USD.  IMAD announced in September that Slovenia's 
trade deficit with EU countries widened in 2008, and the 
surplus of trade with non-EU countries shrank.  However, 
these numbers mostly reflect trade in merchandise, as 
Slovenia's surplus in the services balance grew in 2008.  The 
services surplus was 2.5 times higher in 2008 than in 2007. 
Transport and travel services made up the bulk of the 
surplus.  According to the Slovenian Statistics Office, 21% 
of Slovenian companies sourced their business activities to 
foreign markets in the past eight years.  According to the 
Slovenian Chamber of Commerce, EU countries account for 70.6% 
of Slovenia's exports and 78.9% of its imports.  South 
Eastern Europe receives 16.2% of Slovenia's exports and 
delivers 7.5% of its imports.  Germany is Slovenia's single 
biggest trading partner, accounting for 18.7% of Slovenian 
exports.  Italy follows with 12.5%, then Croatia with 8%, 
Austria 7.5%, France 5.9%, and Russia (essentially the 
greater Moscow greater metropolitan area) 4.4%.  So the 
downturn in the economies of those target countries has 
significantly impacted Slovenia. 
 
¶9. (SBU) Additionally, Slovenia has a vested interest in the 
economies of its neighbors to the East.  The bulk of 
Slovenian FDI is in former Yugoslavian countries, with 28.6% 
in Croatia and 22.8% in Serbia.  Both as a trading partner 
and out of concern for their FDI, Slovenian officials have 
told Emboffs they are concerned about Croatia's struggle with 
liquidity.  PM Pahor recently led a trade delegation to 
Serbia in an effort to increase bilateral trade.  Ministry of 
Finance officials told Emboffs that Slovenia supports 
international financial institutions' efforts to support the 
economies of European countries in financial crisis (ref C). 
 
Other numbers indicate base economic stability 
--------------------------------------------- - 
¶10. (SBU) The government is concerned about the rising 
unemployment, because of the potential for unrest and because 
providing more social benefits would impact the already 
stressed budget.  Current unemployment using the 
International Labor Organization's definition is 4.7%, 
expected to rise to 5.2% in 2009 (ref A).  These numbers are 
low by any standard, and especially low in comparison with 
typical EU rates of unemployment.  However, ILO numbers are 
lower than the number of Slovenian "registered unemployed," 
which can include students and other individuals who do not 
actively seek full-time employment, but still receive 
benefits. 
 
¶11. (SBU) Slovenia's greatest strength in the current 
financial landscape, as echoed by almost all government and 
private sector embassy contacts, is its membership in the 
Eurozone.  Slovenia holds about 793 million USD in foreign 
exchange reserves, which is significant reduced from the 
levels it used to hold prior to adopting the Euro.  Now 
Slovenia relies on the European Central Bank to guarantee 
sufficient currency reserves.  Slovenia is also benefiting 
from the conservative approach of its majority state-owned 
banking system during the previous decade.  Slovenian banks 
largely avoided CDOs and other "exotic" financial instruments 
in the years preceding the crisis.  However, some analysts 
argue that the incestuous relationship among banks and 
state-owned companies, which frequently hold large amounts of 
each other's shares, may conceal significant financial 
vulnerabilities.  Most observers believe, however, that when 
the larger EU countries emerge from the recession, Slovenia 
will too.  As Germany goes, so goes Slovenia. 
FREDEN