Ljubljana - Banka Slovenije has assessed that, after favourable economic activity continued in the eurozone and in Slovenia in the first quarter of the year, Russia's military aggression against Ukraine and the subsequent sanctions have worsened the economic outlook. Risks of prolonged periods of high inflation have increased markedly, it said.

After last year's high economic growth of 8.1%, favourable economic trends continued in Slovenia at the beginning of this year, the central bank noted on Tuesday.

The short-term model estimates of Banka Slovenije thus show a 1% quarterly growth in gross domestic product (GDP) in the first quarter of this year, despite the reduced confidence due to the consequences of the Russian military aggression against Ukraine.

A drop in confidence is currently present in manufacturing and in consumers, but most companies have already lowered their estimates of future demand.

Inflation in Slovenia reached 6% in March, and without the government's measures to mitigate the consequences of the high growth in energy prices, it would have been higher by more than two percentage points, according to rough estimates.

"The high energy prices are increasingly being transferred to the prices of other goods, rising inflation is present in an increasing share of goods and services, and consumer expectations about inflation reached the highest point so far in March."

The conditions on the labour market meanwhile remain very favourable, as employment continues to rise, and registered unemployment is already lower than the previous low from 2008, according to the seasonally adjusted data.

"As expected employment in companies remains high and the availability of workers in the domestic labour market is declining, employment of foreign workers is increasing," the central bank added.

In January, the average gross wage was 2.7% lower year-on-year in nominal terms, while the wage bill was down 1.7% in real terms. In both cases, the main reason is normalisation after the abolition of most epidemic-related wage bonuses.

With high economic growth, Slovenia's fiscal position improved last year and at the beginning of this year, with fiscal risks increasing due to more permanent discretionary measures (personal income tax, extraordinary indexation of pensions, changes in sick leave benefits), Russia's military aggression and the situation in the energy markets, Banka Slovenije concluded.