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Euro area GDP growth increased slightly in the first quarter of this year and was 0.6% quarter-on-quarter (5.4% year-on-year). Available confidence indicators (PMI, ESI) suggest that similar growth is likely to persist into the second quarter of this year. Services are the largest contributor to growth. Growth of activity in manufacturing is modest amid supply chain disruptions and inflationary pressures. In view of the increasing uncertainty in the international environment, mainly due to the war in Ukraine, the EC lowered its February forecast for economic growth in the euro area for 2022 by 1.3 p.p. to 2.7% in May (similar growth is also predicted by the ECB and the OECD in their June forecasts) and expects growth of 2.3% in 2023. The ECB expects inflation in the euro area to reach 6.8% in 2022 before falling to 3.5% in 2023. The forecasts are accompanied by high risks related to the unfolding of the war in Ukraine, in particular the possibility of cuts in gas supplies from Russia to Europe, high prices of energy and food commodities (and higher inflation), continued supply chain disruptions, as well as a faster tightening of monetary policy and a possible resurgence of the epidemic. 

Growth in domestic consumption remains high in Slovenia, while growth in the export-oriented part of the economy is weakening amid increasing supply chain disruptions, cost pressures and uncertainties related to the war in Ukraine. In the first quarter of this year, real GDP growth weakened from the last quarter of 2021 (by 0.8%), while year-on-year growth remained high (9.8%), mainly due to last year’s low base. High growth in household consumption was driven by the gradual easing of containment measures and high employment growth. Turnover in trade increased in most activities in the first quarter and the lifting of the recovered/vaccinated/tested rule is also estimated to have contributed to the positive developments in the retail trade in non-food products, apart from last year’s low base. Turnover in market services also increased during this period (in current terms). Compared to the same period before the epidemic, only travel agencies recorded significantly lower turnover. In the first quarter, growth in economic activity was also driven by investment. After a gradual decline last year, the value of construction put in place increased significantly in the first quarter, for the first time in a long time also in non-residential construction. Cost pressures in construction are increasing. Manufacturing production strengthened somewhat in April after growth slowed in the first quarter. Trade in goods with EU Member States declined in current terms in April. Uncertainty related to supply chain disruptions, rising inflation and the Russian–Ukrainian war is increasing and export expectations are decreasing. Given the increasing uncertainty in the international environment and strong domestic demand, export growth was lower than import growth. After a sharp decline in March and a temporary increase in April, the value of the economic sentiment indicator deteriorated again in May, most notably among consumers, in manufacturing and, to a lesser extent, in retail trade.

Despite the constraints on the supply side, high employment growth continues, mainly on account of the hiring of foreign nationals. The year-on-year increase in the number of persons in employment slowed slightly in March, but still remained high in accommodation and food service activities and in construction, the latter characterised by a high proportion of foreign workers (45%). The volume of student work increased by more than 50% year-on-year in the first quarter of this year. At the end of May, 55,854 people were registered as unemployed, a significant decrease compared to the same period of 2021 (by 25.7%). The number of long-term unemployed also continued to decline. Year-on-year growth in average gross wages in the private sector remains relatively high, which we estimate may already be affected by labour shortages in some activities (accommodation and food service activities, transportation and storage, and construction). Wages in the public sector have been below the relatively high level of the previous year since November last year. This is due to allowances paid during the period when the epidemic was declared, which are no longer paid this year.

The year-on-year increase in consumer prices continued to strengthen in May, reaching 8.1%. The price surge is mainly due to higher energy prices (21.1%), which, as food commodity prices are also rising, are increasingly being passed on to final food prices, which rose 11.1% year-on-year. Prices for services were also higher, by almost 5%. High prices of energy and other commodities and supply chain bottlenecks continue to drive growth in Slovenian industrial producer prices, which reached 20.4% in April. 

The general government deficit in the first four months was significantly lower than in the same period last year. In the first four months, the deficit of the consolidated general government budgetary accounts amounted to EUR 147.6 million, compared to EUR 1.2 billion in the same period last year. The decrease is due to growth in revenue and lower expenditure. Revenue growth is the result of continued growth in economic activity, especially domestic consumption. It resulted mainly from higher revenue from VAT and corporate income tax. Revenue from EU funds and non-tax revenue also increased. Expenditure decreased in the first four months, reflecting lower payments related to measures to mitigate the consequences of the epidemic. On the expenditure side, investments and expenditure on goods and services increased year-on-year.