Slovenia: The new Cyprus?

As recession looms and political uncertainty continues, Slovenia’s property market remains in the mire, with house prices falling, and construction activity on the slide.

During the year to end-Q4 2012, the nationwide house price index plunged by 8.83% (-11.12% inflation-adjusted), the deepest year-on-year decline since Q3 2009, based on figures from the Statistical Office of the Republic of Slovenia . During the latest quarter, house prices dropped 3.54% (-4.42% inflation-adjusted).

The average price of newly built dwellings fell by 13.5% (-15.67% inflation-adjusted) in 2012 from a year earlier while the average price of existing dwellings fell by 6.07% (-8.43% inflation-adjusted) over the same period.

In Ljubljana, Slovenia’s capital, the average price of existing flats dropped 6.35% (-8.7% inflation-adjusted) in 2012 from the previous year. In the rest of Slovenia, the average price of existing flats fell by 8.34% (-10.64% inflation-adjusted) y-o-y in 2012.

According to the European Commission, Slovenia’s property market is expected to remain depressed in 2013, as economic conditions worsen. GDP declined by 2.3% in 2012, amidst weakening investment, rising unemployment and faltering domestic consumption. The economy is projected to contract by another 2% in 2013.

The International Monetary Fund has said Slovenia will need to raise at least €3 billion this year to fund the budget, debt repayments and an overhaul of the banking sector. That will involve the state raising more money by June, when €1 billion of government debt comes up for renewal.

Slovenia, situated between Italy, Austria, Hungary and Croatia, was described as the poster child of the new Europe when it joined the European Union in 2004, 13 years after declaring its independence from a disintegrating Yugoslavia.

Famed for its picture-postcard scenery, the high standard of living and education of its two million inhabitants, and its modern infrastructure, Slovenia was regarded at the time as the most promising of 10 new European Union entrants.