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In its Autumn Forecast, which was prepared at the beginning of September, IMAD predicts a 5% GDP growth this year. “Economic growth will be 0.8 p.p. higher than we predicted in the spring, mainly due to higher private consumption growth in the first half of the year,” commented UMAR Director Maja Bednaš on the latest forecast. “By the end of the year, we expect a marked slowdown in economic growth, which is already indicated by the deterioration in confidence indicators over the summer months and the worsened outlook for the final quarter,” she added.   

Household spending in the first half of the year was, amid high employment levels, mainly driven by consumption of personal and tourism-related services, also due to the redemption of tourist vouchers and government measures to mitigate the effects of inflation. In the second quarter, private consumption declined quarter-on-quarter due to declining household purchasing power, worsening expectations and high uncertainty. Consumer confidence has deteriorated since May, pointing to a continued decline in durable goods consumption in the second half of the year, as well as a decline in food and beverage consumption, as consumers continue to behave in a more rational and frugal manner. Investment growth remains in line with spring expectations, while growth in the export part of the economy will be lower. In addition to the high level of uncertainty, corporate sector investment is also held back by rising prices for capital goods and construction materials, as well as rising interest rates. Government and housing investments will have a positive impact. Year-on-year growth in merchandise exports and manufacturing have slowed even more than domestic consumption. Export trends have been shaped markedly by the slowdown in economic growth in our main trading partners, as well as persistent supply chain disruptions and rising costs, which were exacerbated by the war in Ukraine. With the expected slowdown in export orders manufacturing will also be strongly affected by lower gas and electricity consumption and high prices, especially in the last quarter. In the second half of the year we also expect a slowdown in the growth of services trade. 

“Next year, economic growth will slow down significantly (to 1.4%), mainly due to the tense situation in the first half of the year, but as somewhat higher growth is expected again in Slovenia’s trading partners, a recovery will follow in the second half of the year,” Maja Bednaš explained. Difficult access to energy and the resulting uncertainty and increase in prices, the impact of high inflation on household purchasing power, supply chain disruptions and tighter financing conditions due to the normalisation of monetary policy will affect economic growth in European countries, especially in the first half of next year. Value added in manufacturing and goods exports will continue to be affected by weaker growth in foreign demand, lower gas consumption and still high prices, followed by a recovery, provided there are no shocks in the international environment. In 2023, private consumption growth will be significantly lower than this year. This will be influenced by the still high prices, which will limit purchasing power and prudent spending on non-essential goods and services. Private sector investment will also remain subdued in the face of continued uncertainty, high prices for capital goods and building materials, and rising interest rates. Similar to this year, government investments, which will be supported by EU funds, will have a positive impact on investment activity. In 2024, a recovery of the export part of the economy, together with higher private consumption, will lead to an acceleration of economic growth to 2.6%, while investment growth will weaken, mainly as a consequence of the end of the 2014–2020 financial perspective, leading to a decline in government investment.
 

Employment will be significantly higher this year than last year, and unemployment will be lower. As economic growth will be lower next year, we expect significantly lower employment growth and a modest decline in unemployment. In addition to the economic situation, problems with the availability of labour force will also play a role in view of the demographic trends, which lead to a shrinking of the population aged 15 to 64. Real average gross wages will fall this year due to high inflation and especially last year’s high base in the public sector, but will gradually rise towards the end of the forecast period. Difficulties in obtaining suitable workers and the expected increase in the minimum wage at the beginning of next year will boost growth, especially in the private sector, while growth in the public sector will be particularly affected by the trade union agreement. 

Inflation was rising until the autumn. The increase in consumer prices was 11% in August and was broad-based, with energy and food contributing the most to it. Amid strong demand, supply chain problems and labour shortages putting pressure on wage growth, especially in some service sectors, non-energy industrial goods and services price growth has also strengthened. For the rest of the year, we expect a slowdown in the growth of consumer prices, influenced mainly by the measures taken to mitigate the impact of high energy prices, last year’s high base and the expected decline in household spending. All this will contribute to an overall increase in consumer prices of 8.9% in 2022, moderating to 6% in 2023. Assuming that price pressures ease, inflation is expected approach 2% by the end of 2024.

Uncertainty in the international environment is still high, the risks to the forecast are largely on the downside and continue to depend heavily on the course of the war in Ukraine and the situation on the energy markets as well as the epidemic situation. “A complete halt in Russian gas supplies to European countries would increase the prices of energy and lead to greater rationalisation, which would have a negative impact on industry in particular, but would also affect other activities. Due to the dependence of the Slovenian economy on external factors, especially the availability and prices of energy and foreign demand, the outlook for Slovenia would deteriorate, especially in 2023, if the economic and energy situation worsens”, said Maja Bednaš about the consequences of the deteriorating energy supply situation. If this were to happen already this year or in the winter months, the effect would be stronger due to the pressure of input energy costs and/or additional production constraints, as rapid replacement of Russian gas on a large scale is not feasible in the short term. If GDP growth in the euro area were to be lower by 2 to 2.5 p.p. due to the worsening of the energy situation, economic growth in Slovenia would also be lower than predicted in the baseline scenario, by 1.5 to 2 p.p. Inflation would also be higher, which could lead to a faster tightening of monetary policy.