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Euro area GDP declined quarter-on-quarter in the first quarter. Sentiment indicators suggest that weak economic activity persisted in the second quarter, partly owing to the conflict in the Middle East, prompting a modest downward revision of growth forecasts for this year. Following growth of 0.2% in the fourth quarter of last year, euro area GDP declined by 0.2% in the first quarter of this year, while remaining 0.3% higher year-on-year. The quarterly contraction was significantly influenced by the decline in GDP in Ireland. Confidence indicators suggest that economic activity weakened further in the second quarter, partly reflecting the conflict in the Middle East. Despite a marked deterioration in consumer sentiment, the European Commission expects private consumption to remain the main driver of euro area GDP growth. Following GDP growth of 1.4% in 2025, the Commission forecasts euro area GDP growth of 0.9% this year, strengthening to 1.2% in 2027. In its June Economic Outlook, the OECD presented two scenarios for developments in the Middle East. Both point to weaker global economic growth this year than in the previous year. Under the milder, time-limited disruption scenario, euro area economic growth is projected to reach 0.8% this year – almost half the rate recorded last year – before strengthening to 1.2% in 2027. The OECD identifies further disruptions to energy supplies, lower AI investment, export restrictions for key products in short supply and a reassessment of risks in financial markets as the main downside risks to growth. Conversely, greater business resilience and stronger productivity gains from artificial intelligence could support more robust economic growth.

Short-term indicators of economic activity in Slovenia suggest that economic developments at the beginning of the second quarter remained relatively favourable despite heightened uncertainty. Following stronger growth at the beginning of the year, exports remained broadly unchanged in April and were 2.8% higher in real terms year-on-year in the first four months of the year (imports increased by 5.7%). The largest contributions came from exports of pharmaceutical products, motor vehicles, and electrical machinery and equipment (on the import side, machinery and equipment, motor vehicles, and metals and metal products made the largest contributions). Similarly, after increasing at the beginning of the year, manufacturing output remained at its March level in April. In the first four months of the year, it was 1.7% higher year-on-year, with growth recorded across all technology-intensity groups. The value of construction put in place has been strengthening since the beginning of the year, driven by civil-engineering construction, and is now considerably higher than a year earlier. Available data for April point to continued growth in household consumption, supported by higher purchases of motor vehicles and increased spending on tourism services both domestically and abroad. Data on the value of fiscally verified invoices for May also indicate continued growth of consumer spending. The economic sentiment indicator deteriorated following the outbreak of the war in the Middle East. In May, however, it improved and returned to a level similar to that recorded a year earlier, although it remained below its long-term average.

The number of persons in employment remained broadly unchanged in April, while the number of unemployed persons further declined slightly in May (both seasonally adjusted). Relatively strong year-on-year wage growth this year has been driven by the increase in the minimum wage at the beginning of the year and the implementation of the public sector pay reform. In April, the number of persons in employment was similar to that recorded a year earlier. Employment declined particularly in trade, manufacturing and administrative and support service activities, while it increased in public services, especially in health and social work. At the end of April, 43,060 people were unemployed (original data), representing a decrease of 0.4% compared with a year earlier. The year-on-year decline in the number of long-term unemployed and unemployed persons aged over 50 continued. However, the number of unemployed young people (aged 15–29) has been rising since October 2024, which is assessed to reflect the entry of larger cohorts into the labour market amid weaker labour demand. The year-on-year nominal growth in the average gross wage remained high in March (7.3%). In the private sector, the average gross wage increased by 7.4%, with the strongest growth recorded in activities with a high share of minimum-wage earners (construction, accommodation and food service activities, and administrative and support service activities). In the public sector, the average gross wage increased by 6.8%, reflecting the implementation of the public sector pay reform. 

 Inflation accelerated for the second consecutive month in May (to 3.6%), mainly owing to higher fuel prices resulting from the war in the Middle East. As in the previous month, the largest contribution to inflation (1.3 p.p.) came from prices in the housing, water, electricity, gas and other fuels group, which were around 10% higher year-on-year. This reflected several factors: higher energy prices due to the lower base effect associated with electricity price regulation measures in the previous year, strong growth in solid fuel prices, and the impact of the war in the Middle East on heating oil prices. The contribution of the transport group was also significant (0.8 p.p.), reflecting fuel prices that were around one-fifth higher than a year earlier. Price growth in the food and non-alcoholic beverages group continued to moderate gradually (0.9%). Slovenian industrial producer prices increased markedly in April. Monthly growth (0.5%) was the highest in the past 12 months, while annual growth accelerated to 1.4% (2.5% in the domestic market and 0.3% on the foreign markets). This acceleration was driven primarily by increases in raw material prices, with consumer goods prices also making a significant contribution. 

 The consolidated general government budget recorded a deficit of EUR 397.5 million in the first four months of this year, exceeding the deficit recorded in the same period last year (EUR 286 million). Revenue increased by approximately 11.4%, representing growth more than one-half higher than in the first four months last year. Revenue growth was driven primarily by higher social security contributions (long-term care contribution introduced in July last year), tax revenues and receipts from EU funds. Following the settlement of tax liabilities in April, corporate income tax revenue increased markedly year-on-year. Excise duty revenue also rose slightly, having declined year-on-year in the first quarter. Growth in value added tax (VAT) revenue was also considerably stronger than a year earlier. Receipts from EU funds increased in the first four months, mainly reflecting the implementation of projects under the Recovery and Resilience Plan. Expenditure was 12.2% higher year-on-year in the first four months, representing growth more than 4 p.p. higher than in the same period last year. The largest contributions to expenditure growth came from compensation of employees, reflecting the implementation of the public sector wage reform, and from transfers. The increase in transfers to individuals and households was driven primarily by higher expenditure on pensions, unemployment benefits – which were raised at the beginning of the year – and personal assistance.