Slowdown in GDP growth last year; figures improve at the end of the year

Following the strong post-pandemic recovery, average GDP growth slowed last year, but the data for the final quarter is already pointing to the renewed strengthening of the economy. Banka Slovenije is forecasting moderate economic growth of around 2% this year.

Following the relatively high rates seen in the post-pandemic period, GDP growth slowed to 1.6% last year. One major factor was the slowdown in growth in private consumption, which was down more than a half on 2022 at 1.3%, on account of the persistently high inflation and the waning positive effects from the reopening of the economy after the pandemic. Similar factors also reduced growth in Slovenia’s trading partners, which alongside the decline in domestic price competitiveness translated into lower foreign demand and a real decline of 2.0% in exports. Net trade nevertheless made a positive contribution to GDP growth last year, as a result of an even sharper decline in imports. Economic growth was also driven by strong investment activity and government consumption.

The data for the final quarter is already showing a recovery in economic growth. GDP was up 1.1% in quarterly terms, and by 2.2% year-on-year. Amid falling inflation and continuing wage growth, household consumption recorded its second consecutive quarterly increase, in the amount of 0.4%. The decline in real exports came to an end at the same time: they were up 0.5% in quarterly terms. Gross fixed capital formation also remained a major driver of GDP growth: it was up 1.1% in quarterly terms. Despite the signs of recovery, firms in industry were still facing difficult circumstances at the end of last year, which was reflected in industrial production, which in December was down approximately a tenth in year-on-year terms.

After slowing last year, economic growth is forecast to recover to more than 2% this year according to the Banka Slovenije projections. The recovery will be driven in particular by continuing growth in real household income, and by strengthening export demand in the second half of the year. The principal risks to this forecast remain the geopolitical uncertainty, and the potential for persistent weakness in the main trading partners. Conversely, factors that might potentially drive higher growth include high growth in savings, the robust labour market, and the healthy net financial position of the economy.