Economic activity remains highly favourable in the first quarter

Economic developments in Slovenia remained favourable in the first quarter of this year. Alongside household consumption, domestic activity continued to be driven by heavy investment, where construction accounted for a significant share. Domestic demand also drove growth in imports, which remained even stronger than otherwise robust export growth. The impact of Russia’s military aggression against Ukraine and the resulting sanctions is for now primarily being reflected in high growth in energy and commodity prices.

After rising sharply at the end of last year, economic growth in Slovenia slowed as expected in the first quarter of this year, but continued to outpace overall growth in the euro area. Quarterly growth stood at 0.8%, 0.6 percentage points more than the euro area average, while the year-on-year rate stood at 9.8%.

Private consumption remained robust: the labour market is extremely buoyant, with record high employment and record low unemployment, and is supporting household purchasing power. The lifting of the containment measures further strengthened demand for services, while contrastingly the disruptions to supply chains curtailed purchases of durables, most notably cars.

Year-on-year growth in investment also remained high, with construction investment strengthening notably. Investment is now well above its pre-crisis level. Expenditure to control the pandemic is still having an impact on government consumption.

Growth in exports slowed, but remained high in the first quarter of this year. Domestic demand drove growth in imports, which was even stronger than otherwise robust export growth.

Services and construction were the main sectors driving economic growth. The increased activity in private-sector services is attributable in part to high domestic private consumption, while the number of arrivals by foreign guests also rose sharply as the situation in international tourism normalised. After last year’s weak developments, activity picked up in the early part of this year in the majority of construction segments, despite shortages of labour and materials. There were greater challenges in manufacturing, where year-on-year growth in value-added slowed slightly, and total output stagnated in quarterly terms, amid pronounced variation in individual segments. The situation worsened in the car industry and in certain other directly related segments. Output also declined in the energy sector, where developments were contingent on price pressures and also on the measure to cut network charges.     

The impact of Russia’s military aggression against Ukraine and the resulting sanctions is relatively limited for now. March’s deterioration in the economic sentiment was followed by an improvement in April, with short-term assessments of demand expectations mostly rising. The majority of the shock is being evidenced in a rise in energy prices and commodity prices, which is further strengthening (domestic) inflation via a sharp rise in import prices.

Figure: GDP in Slovenia and the euro area

Sources: SORS, Eurostat