Economic growth remains weak in the third quarter

Economic growth in Slovenia remained weak in the third quarter, although there was a slight improvement in the situation compared with the first half of the year. Weak investment and the cyclical cooldown in construction remain the main factors holding GDP growth back, while the main growth drivers are domestic government consumption and private consumption, and in the third quarter, somewhat surprisingly, net exports.

Quarterly GDP growth strengthened to 0.3% in the third quarter, up from 0.1% in the second quarter, while the year-on-year rate strengthened from 0.7% to 1.4%. Economic growth in Slovenia was thus comparable to the average rate in the euro area, which is facing stubborn challenges in connection with competitiveness and the adverse situation in foreign trade.

From this perspective the latest data on export activity in Slovenia is positive: exports in the third quarter were up 3.2% on the previous quarter, and by 8.4% in year-on-year terms, albeit from a low base. Amid weak investment and a decline in inventories, growth in imports was outpaced by growth in exports, and the contribution to GDP growth by net trade re-entered positive territory after three quarters. With inflation falling further, real incomes rising and the labour market remaining robust, private consumption in the third quarter was up 0.4% on the previous quarter, and up 1.9% in year-on-year terms. Government consumption also remained up in year-on-year terms, by 9.1%. Alongside the negative contribution by the change in inventories, stronger economic growth performance was held back solely by the decline in gross fixed capital formation, which stood at 3.9% at the quarterly level and 8.2% in year-on-year terms.

The decline in investment is particularly evident in construction, where the year-on-year fall in value-added deepened to 10.3% in the third quarter. Conversely the further strengthening of private consumption is continuing to fuel growth in services, including retail, where value-added was up 2.1% in year-on-year terms. Even more encouraging in the third quarter was the growth in value-added in manufacturing, which outperformed the expectations based on the survey indicators and the adverse international situation. It stood at 1.2% in quarterly terms, and 5.0% in year-on-year terms from a low base.

Although the economic situation improved slightly in the third quarter, the available data for the first three quarters of the year point to this year’s GDP growth being weaker than previously projected, which will be taken into account in Banka Slovenije’s new projections due for release in mid-December.