"The future economic and social development will vitally depend on the ability to enhance productivity growth, for which innovation and R&D will have to be boosted," IMAD director Maja Bednaš told the press in Ljubljana on Friday.

The state should increase investment, provide for an encouraging and predictable business environment, strengthen cooperation, facilitate adequate training of human resources and secure adequate infrastructure, said Rotija Kmet Zupančič, editor of the first IMAD report of its kind.

Investment into a variety of fields related to digital transformation and a transition to industry 4.0 should be significantly increased, and the state should prioritise these areas when drawing EU funds.

Productivity growth has slowed down considerably after the last economic crisis, growing at an annual rate of 1.3% in 2010-2018 and at 1.5% in 2014-2018.

However, Bednaš admitted that all advanced economies had problems raising productivity, which however can have a major impact on improving prosperity.

IMAD figures also show that productivity slowed down in the majority of Slovenian sectors.

So Bendaš said not only the state but the entire economy should invest more. "The share of investments in GDP dropped significantly after the crisis, and the need for capital deepening is considerable."

Kmet Zupančič explained capital deepening remained low after the crisis even if the business environment became much more conducive to investment.

Bendaš added this was a result of an uncertain business environment, which makes companies more cautious when deciding to invest, and of a worsened business sentiment.

To an extent it also reflects a slow recovery of the domestic market, low activity of the services sector and lower investment in transport infrastructure and housing.

IMAD analyses also show that higher productivity growth rates were recorded by export-oriented, larger and technologically advanced companies.

Slovenia's R&D expenditure, which has a long-term positive impact on productivity, was rising until 2013 to reach 2.6% of GDP, and was then falling until 2017 to 1.9% of GDP. Last year it rose again to 2%.

Meanwhile, the EU's average R&D expenditure has been rising all along to reach 2.1% in 2018, and so were companies' investments over last 10 years, while they dropped considerably in Slovenia.

The gap between Slovenia and the EU in knowledge and skills is not wide, but if put in the context of population ageing, Slovenia will have to intensify training of people with low education and of older people, according to Kmet Zupančič.

Another issue is that wage growth overtook productivity in 2018, which is not expected to change this year and next, said Bednaš, noting this would make products and services less competitive.