Economy to strengthen over the next few years; inflation to stay close to the 2% price stability target rate

According to the economic projections released today by Banka Slovenije, economic growth has slowed this year following the rapid post-pandemic recovery, but will strengthen again between 2025 and 2027 to average 2.5% over this horizon. Employment growth will however be slower than in recent years. After falling sharply, inflation will stabilise close to the 2% price stability target rate over the projection horizon. The projections are accompanied by risks associated with structural challenges, and with geopolitical uncertainty and potential protectionist measures in international trade.

Banka Slovenije has drawn up its latest economic projections, which show stronger economic growth over the coming years being driven by private consumption based on high employment, growth in real incomes and a gradual improvement in consumer confidence. Government investment will strengthen once again in 2025 and 2026, largely in reflection of the intensified utilisation of EU funds from the recovery and resilience facility. Amid a recovery in economic activity in the main trading partners, we are also anticipating stronger export demand, which will also encourage growth in private investment. This will also be driven by more favourable financing conditions, amid less restrictive monetary policy.

Employment growth over the projection horizon will be more moderate than in the previous years. It is forecast at 0.1% this year and 0.2% next year, but is then expected to gradually strengthen in 2026 and 2027. The labour market will remain tight, which is reflected in the unemployment rate, which will stay low over the projection horizon. With the contribution by labour declining, economic growth over the 2025 to 2027 period will be driven in particular by growth in labour productivity.

Inflation will hold at close to the 2% monetary policy target rate over the projection horizon. We are expecting inflation to strengthen temporarily in late 2024 and early 2025, driven in particular by food price inflation, and by base effects and the new system for calculating standing charges in electricity prices. Rising environmental levies will also have an impact on inflation in 2027.

The economic growth forecasts are mainly accompanied by downside risks, while the risks to the inflation forecast are slightly on the upside. The domestic economic environment remains subject to structural challenges, including those relating to low investment activity in the past, pressures on export competitiveness, and the adverse demographic picture. Similar challenges are being faced by some of Slovenia’s closest trading partners in the euro area, which might lead to a sustained period of slower economic growth, thereby impacting Slovenia’s export activity. The risks to foreign trade are being further strengthened by the increased geopolitical uncertainty, and the potential worsening of protectionist measures in global trade.

Publication Review of macroeconomic developments (and projections) undergoing translation.