The Slovenia Times

Economic growth forecast for this year downgraded

A drop in foreign demand main reason for a downgrade in 2023 growth forecast. Photo: Bor Slana/STA

The national macroeconomic forecaster has downgraded the outlook for Slovenia's economic growth for this year by 0.2 percentage points to 1.6%, mainly due to a decline in external demand. IMAD meanwhile upgraded its growth projection for 2024 by 0.3 points to 2.8%.

"Economic growth is slowing down this year, especially in the export-oriented part of the economy. Private consumption growth is also lower than last year, while investment in buildings and other facilities continues to grow," IMAD said on 13 September.

The projections will be used by the government in budget planning for the next two years, with the proposal due in parliament by 1 October.

The GDP growth forecast downgrade for this year in nominal terms follows after the Statistics Office corrected last year's GDP growth estimate from the initial 5.4% in February to 2.5% at the end of August.

IMAD noted that the official statistics lowered the initial estimate of nominal GDP, which was based on quarterly data, by almost two billion euros in their first annual estimate for 2022.

Fall in external demand

"Real trends are affected in particular by the economic cooling in the most important trading partners, which is more pronounced than expected in the spring, especially in Germany, which has an impact on lower export growth," IMAD director Maja Bednaš told reporters on 13 September.

Indeed, a poll conducted among members of the Chamber of Trade Crafts and Small Business (OZS) has shown 64% already feeling the economy's cooling and 37% have announced layoffs.

Exports are now projected to grow at a rate of only 0.1% this year as a result of higher exports of services, while exports and imports of goods are expected to contract.

The forecast is also affected by changes in real growth of some aggregates in the first annual estimate published last year, in particular private consumption and value added in manufacturing and construction.

IMAD also pointed to an increase in the household savings rate, and lower productivity, especially in manufacturing.

Investment to remain strong

The think-tank expects continued high activity in investment in buildings and facilities, but with a steady slow-down in growth rates. Private consumption growth will be lower than last year.

Touching on post-flood reconstruction, Bednaš noted it could further drive up demand in construction, which would additionally push up wages in the sector, and as a consequence lead to slower reduction in inflation.

Opportunities for higher growth on the other hand lie in particular in efforts to attract labour and in a more efficient phasing of EU funds.

IMAD expects GDP growth to pick up slightly again in 2024, to 2.8%. "With gradually higher growth in foreign demand, we expect exports to continue to grow and value added growth in manufacturing to strengthen, while trade in services will continue to rise," IMAD said. Exports are projected to increase by 3.3% next year.

The growth in the rate of employment will continue to slow down during the rest of this year, while the severe labour shortages will prevent it from picking up in the coming years.

Slow reduction in inflation

IMAD expects a continued although less pronounced reduction in inflation later in the year.

The contribution of food prices to inflation will remain relatively high this year, but food price inflation is coming down from high levels at the start of the year. The contribution of energy prices is expected to be moderate over the forecast horizon in the absence of shocks.

For the 2024-2025 period, IMAD expects the inflation rate to continue to subside in the absence of external shocks and, supported by monetary policy measures, to fall to a healthy 3% by the end of next year and close to 2% by the end of 2025.


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