Economic activity strengthens in the second quarter; severe weather affects the outlook for the remainder of the year

Following the high growth of the last two years, economic activity remained relatively robust in the first half of this year. The economic growth in the second quarter of this year was driven primarily by a large trade surplus, while household consumption began to slow even as the labour market remained tight. The data is in keeping with Banka Slovenije’s projections, which are forecasting moderate economic growth for this year. The severe weather and the measures to deal with its consequences will be a major factor in the economic outlook for the half-year ahead.

According to the SORS, GDP in the second quarter was up 1.6% on the same quarter of last year, and up 1.4% on the first quarter of this year. Quarterly GDP growth in Slovenia was 1.1 percentage points higher than the euro area average.

The growth was driven by a large trade surplus, which was primarily attributable to a sharp decline in imports. Alongside a negative contribution by inventories, the decline in import demand was also driven by lower household consumption. This declined for the first time in two years, as the stimulus effects of built-up savings waned. Conversely, government consumption and investment were domestic demand factors that both made positive contributions to GDP growth, the latter being reflected in the continuing high level of activity in construction.

Our expectation for the half-year ahead is that export orders will continue to decline, and the tighter financing conditions will worsen the situation in industry. The recent severe weather has also had a major impact on the economic outlook for the half-year ahead. This could have an additional adverse impact on certain segments of the economy, although the robust labour market and the private-sector investment and consumption focused on replacing the damaged non-financial assets might have a positive impact on current economic activity.