The government's macroeconomic institute said it expects the economy to expand by 2.3 percent this year, up from its 1.7 percent forecast in March, and 2.9 percent in 2017, up from the 2.4 percent it forecast in March.

Annual average inflation is seen at 1.4 percent in 2017, up from 0.1 percent this year.

The Bank of Slovenia said separately that local banks had reduced the balance of bad loans on their books to 2.4 billion euros in July, or 7.3 percent of all loans outstanding, down from 8 percent a month before.

It said the amount of loans to non-financial companies continued to fall and was down by 10.4 percent in July compared with a year ago.

Bostjan Vasle, the head of the macroeconomic institute, told a news conference that it was possible that lending would start to grow soon for the first time since the bank overhaul in 2013.

"The conditions that could lead towards more loans have been met. A bank overhaul took place, the economy is growing, interest rates are falling, so the turnaround could happen very soon," Vasle said.

In 2013, the previous government poured more than 3 billion euros into local banks to keep them from buckling under a large amount of bad loans. In this way the country also managed to narrowly escape having to ask for international financial help.

Vasle said exports may rise by 5.5 percent in 2017 versus 5.7 percent this year, while investment is seen rising by 6 percent in 2017 compared with a fall of 4 percent this year as investments drop due to lower inflows of European funds.

Reuters