Economic activity slowing in line with expectations

The Slovenian economy is slowing in line with forecasts: activity in the third quarter was down on the previous quarter, albeit up moderately in year-on-year terms. The slowdown in activity in the third quarter was attributable to cooling foreign and domestic demand, which are increasingly curtailing corporate performance and worsening the short-term economic outlook. The current indicators also suggest that the economic situation will remain challenging for the remainder of the year. The situation on the labour market nevertheless remains encouraging.

According to the SORS, GDP in the third quarter of this year was down 0.2% on the second quarter, but up 1.1% on the third quarter of last year, or up 1.6% on a seasonally adjusted basis. GDP in the euro area overall continued to stagnate in quarterly terms (it was down 0.1%).

The main driver of the year-on-year GDP growth in the third quarter was investment activity, particularly government investment according to initial estimates, while the foreign trade surplus also continued to make a positive contribution. In the wake of a sharp year-on-year decline in international trade, the latter was attributable to the decline in imports outpacing the decline in exports. Imports were down more than 12% on the same quarter of last year, while exports were down 9.2%. The decline in the former was driven to a considerable extent by a decline in final household consumption, which is being reflected in reduced activity in retail and in services.

The monthly indicators also suggest that the economic situation will remain challenging for the remainder of the year. Manufacturing is facing a growing decline in export orders, while the slowdown in turnover in retail and services points to the ongoing cooling of domestic demand. Firms are citing labour shortages as a major limiting factor. From the perspective of domestic demand and the economic outlook, the situation on the labour market remains encouraging, as does investment activity, which is being maintained at high levels by government investment, supported by the utilisation of funding from the expiring financial framework.