Brussels - The European Commission has upgraded its forecast for Slovenia's GDP growth from 3.7% to 5.4% for this year, but it expects growth to slow down sharply to just 1% in 2023 compared to its earlier projection of 3.1%.

Slovenia is thus expected to enjoy the second highest growth rate in the EU after Portugal this year based on a strong carry-on effect from last year, shows the Commission's forecast released on Thursday.

The Commission notes that after a brisk first quarter, growth continued in the second quarter, though there are already signs of softening in some sectors.

Overall, the expansion in the first half of the year is expected to have been driven by private consumption and investment, but exports trailed behind import growth.

Growth is slowly being impacted by increasing consumer prices and production costs, tighter financial conditions, lower expected demand in foreign markets, and disruptions in supply chains.

These factors are set to gradually weigh on growth in the second half of 2022 and in 2023.

Next year, therefore, Slovenia's growth rate is expected to be among the third lowest in the EU behind Sweden and Italy, and even below the eurozone average of 1.4% due to the impact of the war in Ukraine and high energy prices

Inflation should hit 7.6% by the end of the year and remain just below 5% next year. This compares to the Commission's earlier forecast of 6.1% and 3.3%, respectively; in June Slovenia's inflation exceeded 10%.

The Commission notes that inflation accelerated at the beginning of the year, driven by food and energy price increases and their pass-through to other goods and services.