Ljubljana - The war in Ukraine and sanctions imposed on Russia have so far had only a limited impact on Slovenia's economy and inflation, but risks are increasing, says Banka Slovenije, the country's central bank.

The central bank would upgrade the country's GDP forecast for this year based on the robust growth and new fiscal measures, but future economic trends are unpredictable due to the situation in Ukraine.

Early statistics show Slovenia's GDP grew by a seasonally adjusted 5.4% year-on-year in quarter four in 2021, above all expectations and above the eurozone average.

The central bank's forecast for this year's quarter one is 0.8% but the central bank says the figure does not take into account the current geopolitical situation.

It adds in its publication that the country's growth throughout the year will depend considerably on the consequences of the war in Ukraine, including the sanctions.

Annual growth will probably exceed its 4% forecast from December, which could be upgraded to over 5%, yet the situation is rather unpredictable.

The Slovenian economy's direct exposure to Russia and Ukraine is relatively insignificant, Banka Slovenije says in The Review of Macroeconomic Trends.

However, the consequences of the war could be felt indirectly, through higher prices of energy and raw materials, lower foreign demand, financial stress and a drop in trust. Interruptions to supply chains could also be felt.

Prices could also continue growing due to the deterioration in geopolitical relations, while inflation could also be fuelled by green transition investments.

On the other hand, the central bank notes that the coronavirus epidemic has an increasingly smaller impact on the Slovenian economy.

It also says that the ongoing robust growth helps general government deficit gradually decrease.

However, improvements in public finances will be slowed down by measures such as those to mitigate the energy crisis, and by public sector pay rises if negotiated.