Press release from the meeting of the Governing Board of the Bank of Slovenia on 30 April 2012

1) The Governing Board of the Bank of Slovenia adopted an amendment to the Regulation on the reporting of branches of Member State banks, which will be published in the Official Gazette of the Republic of Slovenia.

2) The Governing Board also discussed current economic and financial developments. The most important findings were as follows:
Economic activity indicatorsshow a decline in GDP for the first quarter of this year. Manufacturing output is contracting in monthly terms, mostly due to weak economic activity in the euro area, while turnover in many segments of the service sector is also declining as a result of weakening purchasing power and increased caution on the part of consumers. The monthly rate of growth in the construction sector has been mostly positive for the last six months, albeit at very low levels. Economic sentiment declined further in April, particularly consumer confidence. Developments on the labour market are relatively favourable for the moment, although the risk of a rise in unemployment remains high, an indication of the urgency of labour cost adjustments in line with developments in productivity.

The Bank of Slovenia supports measures to restore the fiscal balance in a sustainable manner. Fiscal consolidation can no longer be postponed, despite the adverse economic situation, as the financing conditions of the entire economy depend on the sustainability of the public sector financing. The planned size of the fiscal consolidation in the government proposals for 2012 conforms to the policy of the earliest possible reduction of the deficit to below 3% of GDP. Here all the social partners must endeavour to seek solutions that attain a wider social consensus for burden-sharing. In addition to the priority focus on a reduction in public spending, it would also be sensible to consider potential measures on the revenue side. Pension reform is vital for long-term sustainability. Even as fiscal consolidation acts as a brake on economic activity in the short term, the positive impact in the medium term will provide for stronger development in the private sector and higher potential economic growth.

Inflation rose in the early part of the year, as a result of one-off effects and a new sharp rise in energy prices. It is expected to fluctuate just above 2% this year. Low domestic demand is curbing growth in services prices and prices of non-energy industrial goods. A rise in administered and partly administered prices in sectors with low levels of competition could bring a temporary rise in inflation.