Ljubljana - The European Commission has downgraded Slovenia's growth forecast for this year by 0.4 percentage points to 3.8%. A moderate growth rate, at 3.6%, is meanwhile projected for the country in 2023. Growth in Slovenia is expected to be slightly below the euro area average this year and significantly above average next year.

The focus of the Commission's latest forecast is again on inflation, which is reaching record levels. The annual inflation rate in the euro area was 5.1% in January, according to Eurostat.

The Commission has forecast inflation for Slovenia at 3.7% this year and 2.1% next year, significantly higher rates than in its previous autumn forecast. The inflation rate is expected to remain high at the start of 2022 and then gradually ebb in the second half. In 2023, the inflation decline depends on projected recovery and energy prices.

The rates have gone up in the entire euro area, which is expected to see inflation of 3.5% in 2022 and 1.7% in 2023.

Slovenia's GDP is projected to have expanded by 6.9% in 2021, said the report, noting that the country's economy had been recovering, which provided "a good base for growth in 2022".

"The rapidly increasing prices and supply bottlenecks are expected to limit growth in the beginning of 2022. Still, the high employment level and robust wage growth are expected to support strong consumption growth over the forecast horizon."

In addition, investment growth is also forecast to remain high, and the Commission expects strong demand in export markets to continue, but same as in 2021, "net exports are expected to be negative due to the strong imports".

The Commission publishes two full forecasts a year, one in spring and one in autumn, and two interim forecasts, one in winter and one in summer, which do not include data on public finances.

Last September, the government's macroeconomic forecaster projected Slovenia's growth at 4.7% for this year and 3.3% for next year, while Slovenia's central bank said in December last year the country was projected to reach growth of 4% and 3.3%, respectively.