Economic situation remains uncertain

Despite the uncertainty in key export markets, economic activity in Slovenia remained relatively favourable in the final quarter of last year, in line with our latest projections. The domestic labour market is showing signs of cooling, even amid persistent tightness and continuing robust wage growth. Inflation in December was up slightly on the previous month as expected.

The euro area economy contracted moderately in the final quarter of last year according to the survey indicators, largely as a result of declining activity in manufacturing. The renewed rise in year-on-year energy price inflation saw headline inflation in the euro area strengthen slightly as expected in December, reaching 2.4%. Core inflation remained unchanged at 2.7% for the fourth consecutive month. Like most of the major global central banks, the ECB is continuing to relax its restrictive monetary policy. December saw us make the fourth cut of the year in the interest rate on the deposit facility, by 0.25 percentage points to 3.0%.

Amid great variation in the developments in different sectors, the economic situation in Slovenia remained uncertain in the final quarter of last year, albeit better than a year earlier. Performance in services and retail remained solid, driven by robust domestic consumption and tourism. Developments in industry were also relatively favourable, while construction activity also increased sharply in November for the first time in several months. By contrast the economic sentiment deteriorated slightly in the final quarter according to the survey data. The nowcasts based on the available set of indicators are pointing to quarterly GDP growth of 0.5% in the final quarter. This is in line with our latest projections, which are forecasting growth of 1.4% for 2024 and 2.2% for 2025.

The labour market remained tight at the end of the year, although there are signs of cooling. The situation remains favourable in services in particular, while the workforce in employment in manufacturing is falling. The number of vacancies is gradually falling, but remains higher than before the pandemic. This is evidenced in the persistent tightness of the labour market, where wage growth remains robust.

The encouraging developments seen in international trade in the third quarter have continued, despite the uncertainties in the external environment. Aggregate exports were up 4.4% in year-on-year terms according to the balance of payments figures, while aggregate imports remained broadly unchanged from a year earlier. The 12-month current account surplus amounted to EUR 3.3 billion in November, the largest figure since May 2021. It is still primarily attributable to the services trade surplus.

Headline inflation as measured by the HICP rose to 2.0% at the end of 2024 (up from 1.6% in November). This was attributable above all to a renewed rise in energy price inflation, primarily as a result of a base effect in connection with the cuts in excise duties and margins on motor fuels in December 2023. Core inflation slowed to 2.0% (down from 2.3% in November). This was primarily attributable to slower growth in prices of non-energy industrial goods, while service price inflation remains elevated.

The available data for the state budget, the consolidated general government position and the national accounts reveals a narrowing of the general government deficit last year. This was mainly attributable to temporary factors, including the downsizing of extraordinary measures to mitigate high energy prices, the record buoyancy of the labour market, and a contraction in investment after the end of the previous European financial framework. In an environment of increased uncertainty the public finances remain exposed to numerous risks, including progress on structural reforms, the green transition, and the geostrategic situation.

Publication Review of macroeconomic developments, January 2025 undergoing translation