(Updates with economy minister's comment in para 5-6, background in last para)
By Marja Novak
LJUBLJANA, March 12 (Reuters) - Slovenia's exports dropped 26 percent year-on-year in January and analysts said Thursday's data showed that the euro zone's fastest growing member of the past two years was effectively in recession.
"This data shows that business conditions are very difficult and that all sectors of the economy will feel the impact of the global crisis," Matej Tomazin of investment firm Alfa Invest told Reuters.
"It shows that economic growth this year will be very bad, minus 5 percent or worse," he said.
On Wednesday, the International Monetary Fund said for the first time Slovenia's economy would contract in 2009, by at least one percent. Earlier this week, the Bank of Slovenia made a similar forecast.
Slovenian Economy Minister Matej Lahovnik later on Thursday confirmed a possibility of a recession this year.
"Slovenia is not yet in a technical recession but regarding the big fall on export markets we cannot exclude a possibility that that will happen," Lahovnik said.
January imports were down 31.5 percent, the statistics office said. This reduced the trade deficit to 69.7 million euros ($89.06 million) from 327.8 million a month before.
"A smaller trade deficit is one good thing among a lot of bad things. Slovenia is highly effected by the economic downturn in its main trading partners because it is dependent upon exports," said Mojmir Mrak from Ljubljana's Faculty of Economy.
Slovenia exports some 70 percent of its production, most of it to the European Union.
So far about 350 companies with some 40,000 employees have decided to cut labour hours due to lower demand for their products, mostly in car and household appliances industries.
"I expect exports will continue to fall year-on-year until the middle of the year, after which they could stabilise," Tomazin said.
Slovenia, which joined the EU in 2004 and adopted the euro in 2007, last contracted in 1992, when its economy shrank 5.5 percent as the country lost its traditional markets after declaring independence from the former Yugoslavia.
Its economy expanded by 3.5 percent last year, down from record growth of 6.8 percent in 2007.
The latest forecast of the government's Institute of Macroeconomic Analysis and Development sees 2009 GDP growth at 0.6 percent but the institute is expected to revise this figure down in early April after Slovenia's economy contracted by 0.8 percent year-on-year in the last quarter of 2008. (Reporting by Marja Novak, Edited by Zoran Radosavljevic and Andy Bruce)