Slovenia Economic Forecast

After almost flatlining in annual terms in Q4, our panelists expect activity to pick up slightly in Q1. In January–February, significantly stronger wage growth and lower unemployment in comparison with Q4 likely reduced pressure on private consumption. Moreover, industrial production contracted at a slower pace over the same period compared with Q4. That said, retail sales growth slowed and inflation remained elevated in Q1 compared to Q4. In April, the government extended its energy price cap until the end of the year and eased conditions for hiring foreign workers, boding well for activity. That said, political instability is on the rise; the ruling party’s support fell significantly as the public is reportedly dissatisfied with progress on reforms, while farmers’ protests over environmental regulations have brought the capital, Ljubljana, to a standstill on a number of days over recent weeks.

Harmonized inflation accelerated to 10.4% in March (February: 9.4%) due to higher price pressures for electricity due to the partial elimination of measures to mitigate rising energy costs. Inflation will cool this year as softening demand, a tougher base effect, and energy price caps keep prices in check. Rising commodity prices are an upside risk.