Ljubljana - Driven by stimulus-fuelled domestic spending, Slovenia's economy expanded by 8.1% in real terms in 2021 after a 4.2% contraction the year before, far outpacing all forecasts. In nominal terms it was up 10.9%, show preliminary data released by the Statistics Office on Monday. In the fourth quarter GDP grew by a seasonally adjusted 5.4% year-on-year.

Domestic spending surged by 10.8% year-on-year after contracting by 4.6% last year, with final consumption, growing at 9.4%, having a bigger impact on headline growth than investments, although investments expanded by 15.5%, according to the statisticians.

External demand improved as well, but with imports significantly outpacing exports, the trade surplus narrowed from EUR 4.3 billion in 2020 to EUR 2.8 billion last year. Its impact on GDP accordingly declined.

Total employment stood at 1,054,000 at the end of the year, rising by 1.4% over the year before. Employment increased the most in manufacturing, construction, human health and social work activities, and in administrative and support services.

Quarterly figures show GDP growth accelerating, from 1.3% in the third quarter to 5.4% in the final quarter.

The quarterly growth was driven by buoyant domestic spending, which surged by 13.9% year-on-year driven by an almost 23% increase in household spending. Gross investments rose by less than a percent.

"To sum up the whole year, we exceeded the pre-crisis level by the first half of the year," said Romana Korenič, who does national accounts at the Statistics Office.

The majority of components of GDP have fully recovered, but some, in particular travel and hospitality, remain significantly below pre-coronavirus levels.

The central bank noted that growth significantly exceeded the eurozone average and while it continued early this year, there were severe headwinds.

"Future trends will be impacted by factors associated with Russia's military aggression. The direct dependence of the Slovenian economy on the Russian and Ukrainian markets is relatively modest. Nevertheless, the impact on GDP and inflation growth may be significant," it said.

Similarly, IMAD, the government's macroeconomic think-tank, said the course of the war in Ukraine and the escalating sanctions against Russia would have a major impact on growth as well as assumptions underlying future forecasts.