Slovenia Economic Forecast

After accelerating in Q1, annual growth sped up again in Q2. An improvement in net trade—imports fell more sharply than exports—and a rebound in public spending drove the reading, more than offsetting a contraction in private consumption and a slowdown in fixed investment. A marked decrease in imports from Russia was a key driver of the net trade reading, while still-high inflation and higher interest rates were a drag on output. Turning to Q3, our panel expects another acceleration. Q2’s real wage growth and slightly lower unemployment rate should support private consumption into Q3. Moreover, in July, inflation decelerated compared to the Q2 average, further reducing pressure on real incomes. Government support and EU solidarity funds will provide additional support. That said, floods in early August—the worst in the country’s history—will take their toll on activity in the short term.

Harmonized inflation fell to a 19-month low of 5.7% in July (June: 6.6%) due to lower price pressures for housing and food, as well as a sharper decline in transport prices. Average inflation will slow this year from 2022 due to a pullback in demand and lower energy prices. That said, price pressures are set to stay above the ECB’s 2.0% forecast during our forecast horizon.