Ljubljana - After contracting by an estimated 5.5% in real terms last year, Slovenia's economy returned to growth in the first quarter of the year as GDP expanded at an annual rate of 1.6% in real terms or by as much as 2.3% when adjusted for season. It rose by 1.4% from the final quarter of 2020, data from the Statistics Office show.

The year-on-year growth was driven most prominently by gross fixed capital formation, as well as by exports and household consumption expenditure.

Gross fixed capital formation increased by 7.6%, mainly due to a 20% surge in investment in machinery and equipment as investment in transport equipment soared by 31.7%.

Meanwhile, investment in construction declined by 3.9% compared with the same quarter a year ago.

Exports and imports grew at annual rates of 0.8% and 0.5%, respectively, but only exports and imports of goods increased (+4.2% and +2.7%, respectively), while trade in services declined (-14.1% for exports and -12.2% for imports) due to a slump in travel.

Household final consumption expenditure increased by 0.4%, but household final consumption expenditure on the domestic market decreased by 3%, due to lower expenditure for services.

Household expenditure for durable goods increased the most, mainly for cars.

Total employment decreased by 1% year-on-year to 1,035,000 people. Most jobs were lost in accommodation and hospitality industries, administrative and support services, and manufacturing. In some sectors employment increased, most notably in human health and social work activities.

Commenting on the growth figures, the central bank noted that unlike the eurozone, which on average contracted by 1.8% in the first quarter, Slovenia's economy started recovering as early as the first quarter.

The 1.4% growth on the previous quarter is attributed to release of private consumption that came with the easing of restrictions, except for some leisure activities that were still subject to curbs.

Industrial production saw a slight slow-down, mainly due to a drop in the pharmaceutical industry, while the central bank believes the decline in construction is of short-term nature, given planned housing construction and public investments.

Banka Slovenije expects a strong acceleration in economic activity in the second quarter with weekly indicators for May suggesting further growth in private consumption and exports, a boost in business sentiment and an improvement in consumer confidence.

As Covid-19 curbs remain present, a short-term drag on growth could be limitations on the supply side, associated with longer delivery periods and hikes in commodity prices, says the central bank.

The Institute of Macroeconomic Development (IMAD), the government's economic forecaster, says the growth figures were largely in accordance with its projections, except for growth in private consumption being somewhat stronger.

Apart from continued recovery in the export part of the economy, growth is also attributed to the base effect as coronavirus restrictions had already impacted negatively on economic activity in the same time a year ago.

"The trends reflect a somewhat better epidemic situation and gradual easing of restrictions, as well as businesses and consumers adapting to the changed situation," IMAD director Maja Bednaš commented.

As another factor she noted continued growth in disposable income, linked to recovery in the labour market and government furlough and income support measures.

With further growth of activities involved in international trade and further relaxation of restrictions, the services sector is expected to make a marked recovery, which would reflect positively on overall growth.

However, Bednaš also notes that the tempo of recovery will continue to depend on the epidemic situation in Slovenia and its main trading partners, the vaccination rollout and well thought-through steps to preserve or phase out mitigation measures.