Commentary on economic growth data in the second quarter

Economic growth remained high in the second quarter of this year, in line with Banka Slovenije’s expectations. Similarly to previous quarters, domestic activity was driven by heavy investment alongside household consumption. Domestic demand continues to fuel growth in imports, while growth in exports also strengthened despite the difficult international situation. Banka Slovenije should also highlight that the outlook for economic growth over the following quarters is less encouraging, in light of the continuing Russian military aggression. 

Economic growth in Slovenia remains better than in the euro area overall, where quarterly GDP growth stood at 0.7% according to initial estimates (compared with 0.9% in Slovenia), and year-on-year growth at 4.0% (8.3% in Slovenia). The majority of year-on-year economic growth in Slovenia was again driven by increased domestic consumption. Conditions remain favourable for growth in private consumption, as the number of registered unemployed continues to fall, and wages and other household income rise. The tourism sector also enjoyed a good start to the summer season, with the number of overnight stays in June up almost a fifth on June 2019, thanks primarily to domestic guests.

Investment also continued to strengthen in year-on-year terms, and is being supported by high capacity utilisation, large corporate financial surpluses and sharply negative real interest rates. The government is also playing a major role.

Year-on-year growth in exports strengthened slightly compared with the beginning of the year, a better performance than had been suggested by manufacturing firms’ survey expectations. Imports also continued to increase fast in year-on-year terms, as aggregate domestic demand remained robust.

Retail turnover and turnover in certain recreation services continued to grow, which was confirmed by the rise in the value of card payments and ATM withdrawals. According to the monthly figures, construction activity was also at a high level compared with 2019.

Aggregate manufacturing output is also continuing to increase according to the monthly figures, albeit less intensively than last year, as expected, when the economy was opened up following the lifting of containment measures. Another factor is that a third of the manufacturing sector was facing a year-on-year decline in output in the second quarter amid the difficult international situation.

Banka Slovenije finds the economic developments to be in line with the expectations stemming from our June forecasts. Here we should note that the outlook is more uncertain, given the continuing Russian military aggression. With inflation high, access to energy and commodities disrupted, and confidence falling among firms and consumers, expectations of economic growth over the year ahead are declining.

Figure: GDP in Slovenia and the euro area

Note: *Seasonally and calendar adjusted
Sources: SORS, Eurostat.