Slovenia

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENT

Better-positioned growth, albeit weighed down by flooding in August 2023

Growth is set to strengthen in 2024 even though it will be weighed down by the floods of August 2023, the cost of which is estimated at 10% of GDP. It will be boosted by investment (22.5% of GDP), mainly public and flood-related, notably as part of its Recovery and Resilience Plan (RPP) financed by the European Union. Following the damage in the summer of 2023, Slovenia adjusted the content of the RPP to help victims and strengthen reconstruction and climate resilience efforts. The country has also included a section dedicated to reducing its dependence on Russian oil and gas as part of the European REPowerEU plan. To this end, the European Commission approved a budget of EUR 2.68 billion in 2023. This is a key step for Slovenia, which, by 2022, was drawing 17.6% of its primary energy from Russia. In addition, manufacturing activity (33% of GDP) will support growth thanks to the robustness of high-tech activities, such as the manufacture of ICT equipment and pharmaceuticals. Stabilisation of energy prices should also facilitate the recovery of energy-intensive industries (metallurgy, chemicals and paper). In addition, with foreign demand, notably from Europe, trending upwards, exports of goods and services will pick up again. Although they benefit from a thriving tourism sector (10% of GDP), exports will be harmed by a deterioration in competitiveness stemming in particular from wage pressures. Labour shortages, wage demands and minimum wage increases have been driving robust nominal wage growth since 2018. However, this is set to weaken in 2024 as price pressures ease. Private consumption (53% of GDP in 2023) will increase thanks to a historically low unemployment rate (3.3%, as defined by the ILO), accelerating real wage growth and lower inflationary pressures.
Inflation is set to fall sharply thanks to moderating energy prices and the delayed effects of monetary tightening. However, the gradual withdrawal of government measures aimed at containing inflation will somewhat limit this decline. On the other hand, rising labour costs and deteriorating production conditions in the agricultural sector caused by flooding could keep food prices relatively high. While the European Central Bank (ECB) has not raised lending rates since October 2023 when it set its main refinancing rate at 4.5%, it could, however, begin to gradually reduce rates in 2024 as inflationary pressures ease.

Public deficit weighed down by flooding

The public deficit will increase in 2024 due to reconstruction costs, despite efforts to consolidate public finances. Measures relating to the pandemic and energy will be phased out. However, spending on reconstruction (estimated at 2.5% of GDP in 2024) and the public sector wage bill (8.3% of GDP in 2023) will weigh heavily on expenditure (44% of GDP). On the revenue side (39.7% of GDP), the government plans to temporarily increase corporate and bank taxes to finance reconstruction. EU subsidies (1.7% of GDP in 2023) will also support reconstruction and infrastructure improvements. The public deficit will be financed by borrowing, in particular by issuing treasury bills, which will limit the decrease in the public debt ratio, made possible by inflation and stronger activity.
While Slovenia previously enjoyed a decade-long current account surplus, its status as a net energy importer led to a deficit in 2022. In 2024, as in 2023, the current account will again be in surplus, although the latter will decline. More robust import growth driven by domestic consumption will generate a trade deficit. The usual trade surplus has narrowed since the pandemic. However, the services surplus (6% of GDP in 2023) will offset this trade deficit due to construction, ICT, transport and tourism. It will also offset the net outflow of dividends and profits, the cost of debt servicing (accentuated by high interest rates on international markets) and payments to the EU budget (1.1% of GDP in 2023).

A coalition government battered by social unrest

The Movement for Freedom (GS), a social-liberal-environmental party led by Robert Golob, won the April 2022 general election with 41 of the 90 seats in the National Assembly. The party formed a left-wing coalition with the Social Democrats (7 seats) and the Left Party (5 seats). The right-wing populist Slovenian Democratic Party (SDS) and the Christian Democratic New Slovenia party form the opposition, with 27 and 8 seats respectively. The coalition government is expected to remain in power until the end of its term of office in 2026, despite growing tensions with healthcare professionals and civil servants, particularly over pay.
Internationally, relations with Croatia remain tense over the Bay of Piran, a disputed border area between the two countries. Furthermore, in October 2023, Slovenia reintroduced police controls at its Hungarian and Croatian borders, citing a security risk due to organised crime and existing tensions in the Middle East.

Last updated: April 2024