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In its Autumn Forecast, prepared in early September, the Institute of Macroeconomic Analysis and Development of the Republic of Slovenia (IMAD) projects GDP growth to slow from 1.7% last year to 0.8% this year, significantly below the 2.1% anticipated in the spring. “The slowdown is primarily driven by weaker export activity, particularly in the first half of the year, reflecting the economy’s strong exposure to persistent challenges of European industry,” said Alenka Kajzer, Acting Director of IMAD, commenting on the current forecast in light of this year’s economic developments. A noticeable recovery is not yet expected in the second half of the year, although conditions have shown some improvement. After the conclusion of trade agreements by the United States with several major partners, including the EU, uncertainty surrounding global trade policy, while still elevated, has eased somewhat from historically high levels. In parallel, some sentiment indicators in the euro area have begun to improve. “Against this backdrop, economic growth in 2025 will be driven mainly by domestic demand, especially household consumption, supported by robust employment and accelerating wage growth,” added Kajzer. Following stagnation last year, gross fixed capital formation is projected to expand moderately this year, underpinned by growth in construction investment – particularly in non-residential and infrastructure projects – as well as additional investment in manufacturing, given the sector’s high capacity utilisation. Government consumption growth is expected to remain more subdued than last year and below the levels envisaged in the spring. In particular, growth in social transfers in kind has moderated (following last year’s introduction of the compulsory health contribution), as has expenditure on goods and services, which was elevated last year partly due to flood-related reconstruction. This year, flood recovery efforts are instead contributing mainly to higher social transfers and capital expenditure, which are supporting the growth of private consumption and investment. “In the next two years, with somewhat stronger growth in external demand, a recovery is expected in the export-oriented segment of the economy. Growth in investment will also be higher, directed towards capacity expansion in the export sector and buildings and structures, where, in addition to infrastructure investment, we also expect a renewed increase in residential investment. Government consumption growth is expected to be volatile, reflecting the phasing-in of new entitlements under the long-term care system,” explained Kajzer. In the next two years, annual economic growth is expected to be around 2%.

Employment is projected to decline this year, and then largely stagnate over the following two years, while unemployment is expected to remain low throughout the entire period. After contracting in the first half of the year, employment is expected to stabilize in the second half of 2025. Despite stronger economic growth, employment is projected to remain largely stagnant over the next two years, primarily due to demographic constraints. A significant share of new job creation will continue to rely on the employment of foreign nationals. “The average number of registered unemployed persons will remain broadly unchanged this year compared with the previous year. In the next two years, with unemployment at a historically low levels, further declines will be driven mainly by demographic factors, resulting in a gradual increase in transitions from unemployment into inactivity or retirement,” commented the Acting Director of IMAD on expected labour market developments.

This year, nominal wage growth will reach 7.5% (10.0% in the public sector and 6.0% in the private sector), exceeding last year’s growth, before easing somewhat thereafter, while real wage growth will exceed the rates observed a decade ago. In the public sector, wage reform will have a significant impact on the strong wage growth. Its impact will be greatest this year and will gradually diminish over the next two years. In the private sector, wage growth is also expected to remain relatively strong this year and in the coming years, supported by continued labour market pressures and amplified by the demonstration effect of public sector wage increases. Nevertheless, companies’ efforts to preserve competitiveness are expected to result in more moderate real wage growth compared with recent years.

Inflation in 2025 (2.9% year-on-year at end-2025) will be somewhat higher than last year, mainly due to higher food prices, and above the level projected in the spring, before declining towards 2.3% over the next two years. Service price growth will also remain relatively elevated, driven further by wage growth due to labour shortages and by demand supported by the projected increase in disposable income. Some other indicators, however, suggest limited additional price pressures. Producer price growth is moderate, while import prices declined over the summer, reflecting lower energy costs and the appreciation of the euro. In the absence of external shocks, energy price dynamics will continue to be shaped by past administrative measures through base effects, and going forward, also by the network charges. After 2025, inflation is expected to ease to 2.3%, primarily reflecting a projected slight moderation in food price growth, with the effects of climate change continuing to weigh on production volumes and costs. Service price growth is expected to persistently outpace overall consumer price inflation, keeping core inflation slightly above 2% over a longer period.

The realisation of the Autumn Forecast is accompanied by significant risks, predominantly on the downside, stemming mainly from the international environment, though some originate domestically. “The greatest downside risk to GDP growth from the international environment arises from a possible escalation of trade tensions and rising uncertainty, which would weigh on economic activity in Slovenia’s trading partners, particularly through lower investment in sectors exposed to international trade. Another risk to the baseline forecast scenario is a potential deterioration in financial market confidence, which could tighten financing conditions and prompt greater caution by firms and households in investment and consumption decisions,” explained Kajzer. Geopolitical and other risks also remain substantial, with the potential to slow the growth of the European and Slovenian economy at a time when they have long been facing structural challenges and declining competitiveness. An escalation of conflicts in war-affected areas, particularly in the Middle East and Ukraine, could lead to higher prices of energy, food and transportation, and supply chain disruptions, further weakening global trade and European economic growth and intensifying inflationary pressures. On the domestic side, downside risks are primarily linked to the capacity to implement large-scale investment projects and to rising labour costs. Upside risks to growth include a stronger-than-expected impact of higher defence expenditure (both domestically and abroad), more effective attraction of skilled labour, and favourable effects from EU funds absorption combined with reform measures.