Updated stability programme of Slovenia, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 74/5

On 4 March 2008, the Council examined the updated stability programme of Slovenia, which covers the period 2007 to 2010.

Slovenia's generally strong GDP growth throughout the last decade peaked during the first year of membership in the euro area. However, a marked pick-up in inflation, mainly due to commodity price developments in conjunction with a lack of competition in some sectors, was also registered in 2007, with spill-overs to wages being a risk for 2008.

Against the background of the strong economic growth during the run-up to EU and euro area entry, good progress in consolidating public finances was made. For the future, enhancing labour productivity, keeping wages in line with productivity and continued fiscal efforts will be needed to foster macroeconomic stability, including lower inflation. Addressing the recent acceleration of inflation in Slovenia would help preserve the competitiveness of this export-oriented economy. Moreover, the long-term sustainability of public finances remains a challenge in view of the significant expected effects of ageing on the budget in the absence of further pension reform. To support the economy's ongoing catching-up process, it will be important to continue with structural reforms, especially regarding labour and product markets. In the same context, further redirecting public expenditure towards growth-enhancing categories, while tackling budget rigidity and improving the efficiency of spending, will also be beneficial.

The macroeconomic scenario underlying the programme envisages that real GDP growth will slow from 5,8 % in 2007 to 4,6 % in 2008 and 4,1 % in 2009 before picking up to reach 4,5 % by the end of the programme period. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions, although risks for 2008 stemming from the external environment have increased since the completion of the stability programme. After the unexpected increase in inflation in 2007, the programme's projections for inflation are significantly higher than in last year's scenario. Nevertheless, they still appear to be on the low side for 2008 given recent developments in food and energy prices. Second-round effects from the strong pick-up in inflation in 2007 as well as public sector wage increases spilling over to the private sector could lead to a larger inflation differential with the rest of the euro area. If persistent, this would entail less favourable competitiveness developments than implied by the programme.

For 2007, the general government deficit is estimated at 0,7 % of GDP in the Commission services' autumn 2007 forecast, against a target of 1,5 % of GDP set in the 2006 programme. The difference is mainly explained by a positive base effect from the 2006 outcome and by higher-than-projected nominal GDP growth in 2007. At the same time, also according to the 2007 update of the programme, more positive-than-planned revenue developments were partly offset by higher expenditure growth than planned in the 2006 programme. However, more recent information on a cash basis points to a better 2007 outturn, possibly a slight surplus. Overall, budgetary...