Economic growth in Slovenia slowed down in the first half of 2019 on the back of weakening foreign demand, and it is expected to remain broadly stable over the forecast horizon, the report says.

Growth is expected to continue to be driven by domestic demand. "Domestic demand is expected to be supported by continued increases in employment and wages, as well as favourable bank lending conditions."

A negative contribution is expected from net exports, with export growth expected to be significantly lower in 2020 and 2021, at 4.9% and 4.6%, respectively, after growing by 8.6% in the first half of 2019. Slovenia's current account surplus is projected to decline to 5.1% of GDP in 2021 after reaching 5.8% in 2019.

Negative risks to the growth mainly stem from the external outlook, as "a sharper-than-expected slowdown in exports ... would also affect business investment".

"On the upside, household consumption could increase faster than currently projected as the saving rate remains high."

Inflation is projected to increase slightly in the coming two years, from 1.8% in 2019 to 1.9% in 2020 and 2.0% in 2021.

As for unemployment, the Commission said "an inflow of foreign workers and a rising participation rate should help alleviate labour supply constraints to some extent". The unemployment rate is projected to fall to 4.4% in 2019 and to stabilise at 4.2% in the following years.

The government budget balance is forecast to remain in surplus, with a slightly improving structural balance position in the coming years after a deterioration this year.

The Commission projects a 0.5% of GDP general government surplus for this and the coming year, and 0.6% for 2021. In May, the Commission had forecast a surplus of 0.7% of GDP for this year and 0.9% for next year.

The structural deficit is expected to stand at 1% this year, at 0.9% in 2020, and at 0.7% in 2021. In May, the Commission projected 0.8% for 2019 and 0.3% in 2020.

"The downside risks to public finances stem from expenditure pressures, particularly on wages and social benefits," the Commission wrote.

Meanwhile, Slovenia's debt-to-GDP ratio is expected to decrease significantly from 70.4% in 2018 to 63.1% in 2020 and to fall below the 60% threshold in 2021.