Slovenian economy strong but outlook subdued
Slovenia's economy has emerged from the Covid-induced economic crisis robust, with GDP growing at a rate that is above the eurozone average and employment rising to record levels. However, the outlook for this year and next remains more subdued.
GDP growth slowing
Slovenia's economy expanded at an annual rate of 5.4% in 2022, driven by high domestic demand in the first two quarters of the year. Domestic spending however cooled off in the last two quarters as high energy prices depressed output in manufacturing and export growth slowed down due to the easing of economic activity in Slovenia's main trading partners.
Having contracted sharply during the Covid crisis, merchandise exports surged by over 34% in 2022. However, imports rose at an even faster pace, by almost 37%, which is why the net contribution of trade to economic growth was negative. Analysts expect the pace of trade to slow this year and next.
Foreign and domestic forecasters project that economic growth will be significantly lower this year, with most projections indicating GDP will expand by less than 2%. IMAD, the government's macroeconomic forecaster, thinks GDP growth will hit 1.8% this year.
Since last autumn, uncertainty about energy supply and price trends has been reduced, and the outlook for economic growth in the country's most important trading partners has improved. Nevertheless, growth in 2023 and 2024 will be still considerably lower than last year.
Inflation stubbornly high but declining
Driven by high energy and food prices, consumer price growth hit 10.3% at the end of the year but returned to below 10% by February. However, this is still more than a percentage point above the eurozone average.
Price growth is projected to ease considerably this year and IMAD projects the annual rate will decline to below 4% by the end of the year.
The latest inflation data shows the impact of high energy prices is easing, whereas food price growth remains high and has been declining at a much slower pace as the impact of months of rapid growth in energy prices continues to percolate through the value chain.
Unemployment at record lows
The labour market was red hot last year. The number of those registered as unemployed plummeted from a high of more than 91,000 at the start of 2021 to just over 52,000 at the end of 2022, before ticking up slightly at the start of the year in what is a normal seasonal trend due to the end of fixed-term contracts.
The pace of hiring is projected to slow this year, not just because of the slowing economy but also because the labour market remains very tight. Employers still have a lot of vacancies, but they are not being filled due to a shortage of skilled workers, in particular in manufacturing.
IMAD projects that the registered unemployment rate, which stood at 5.3% at the end of last year, will tick up slightly by the end of 2023.
Wage growth brisk but below productivity growth
Wages surged during the early stages of the Covid crisis due to generous Covid bonuses, but growth has since subsided.
The average gross wage stood at €2,160 last year. While this is an increase of 4.6% on the year before, central bank analysts have described it as moderate given that the rate is below inflation and productivity growth. In real terms wages went down by 5% over the year before because of the high inflation rate.
It remains unclear for now what the impact of the higher minimum wage will be. The statutory minimum wage rose by 12% in January, to €1,203 gross, and is likely to exert upward pressure on wages in the coming months.
Debt and deficit projected to widen
General government debt was halved to 2.4% of GDP last year, a level close to the EU average. Analysts however expect it to widen again, mostly due to mechanisms put in place to subsidise energy prices for companies and households.
Similarly, general government debt rose to 72.3% of GDP, which is nearly seven percentage points higher than at the end of 2019, before Covid hit, though still well below the 85% of GDP it hit in the first quarter of 2021, when stimulus was in full swing.
Given that billions of euros will be needed to invest in the green and digital transition, analysts expect debt to widen further.