Private consumption remains the key factor in weakening growth

The domestic economy continued to cool in the final quarter of last year, primarily as a result of a contraction in investment and the slowdown in international trade. The key domestic factor remains private consumption, which is being driven by the record highs of the labour market and the further strengthening of household purchasing power. The Bank of Slovenia is nevertheless warning that new risks are appearing alongside the known risks from the international environment, and the uncertainty surrounding coronavirus is intensifying.

According to the Statistical Office, year-on-year growth in GDP slowed in the final quarter, even as quarterly growth remained positive, while GDP was up 2.4% over the whole year. The Bank of Slovenia finds these figures to be in line with its forecasts, and similar growth is expected this year.

The key reason for the weaker growth in the final quarter of last year was investment, which was down significantly in year-on-year terms. This was a major factor in the decline in imports, and consequently in the strongly positive contribution to GDP growth made by net trade.

Despite record figures from the labour market, and the further strengthening of household purchasing power, year-on-year growth in private consumption slowed to 1.2%; spending on consumer durables was up on the third quarter, while everyday consumer spending weakened. Consumption thus remains the segment of the economy that is still recording relatively good performance.

Similar to other international institutions, the Bank of Slovenia is warning that the uncertainty in connection with coronavirus is rising, alongside other risks from the international environment. The majority of current economic forecasts are predicting the coronavirus epidemic to peak in the first quarter of this year, as assested by analitical house Nomura, while estimates of its impact on this year's global economic growth, which prior to the outbreak of the epidemic had been forecast at 3.3%, range from 0.2 percentage points to fully 1.2 percentage points. Meanwhile, its negative impact on euro area growth is estimated at between 0.2 and 1.0 percentage points. Trade and tourism are likely to be the worst-hit sectors, but the impact on confidence will also be negative.