Ljubljana - The Institute of Macroeconomic Analysis and Development (IMAD) has upgraded its growth forecast for the Slovenian economy for this year by 0.8 percentage points to 5% despite the energy crisis. However, it corrected significantly downwards the outlook for 2023, halving it from 3% in spring forecast to 1.4%.

The improvement expected this year is mainly due to favourable trends in the first half of the year and stronger-than-expected growth in consumption, IMAD director Maja Bednaš told reporters on Thursday after the autumn forecast was reviewed by the government.

"Economic growth in the first half of the year was quite strong and private consumption in particular surpassed our expectations," she said. The improved outlook is also a result of a higher-than-initially-expected contribution from changes in inventories.

Consumer confidence and business sentiment started deteriorating in May, a trend that continues in the second half of the year, said Bendaš, forecasting a more substantial slowdown to follow in the second half of the year.

Private spending growth is expected to stay relatively high because the rate of saving decreased more than the government forecaster initially expected. However, high inflation impacts on the purchasing power of households, said Bednaš.

As the energy crisis is expected to worsen and slow down economic activity in Slovenia's main trading partners, the country's export economy will slow down as well toward the end of the year.

Private consumption is also expected to decline as inflation presses down on the purchasing power. Due to the substantial uncertainty and rising interest rates, the forecaster also does not expect any substantial increase in investment.

Next year GDP growth is expected to slow down to 1.4% before recovering to 2.6% in 2024 assuming the absence of shocks in the international environment and a stabilisation of prices.