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In the Spring Forecast, prepared by the Institute of Macroeconomic Analysis and Development (IMAD) in the second half of February, GDP growth in 2025 is projected to accelerate to 2.1%, which is slightly less than expected in autumn. “Domestic consumption will be a key driver of GDP growth this year, in particular continued growth in private consumption supported by rising wages and social transfers, as well as a recovery in investment after last year’s decline, especially in government investment. After last year’s strong growth, which moderated markedly in the fourth quarter, growth in goods exports is expected to align more closely with foreign demand this year, while growth in services exports will accelerate further” said Maja Bednaš, Acting Director of IMAD, on the expected economic activity in the current forecast. Growth in household consumption will enable turnover growth in trade, as well as in tourism- and leisure-related services, further boosted by the continued rise in consumption by foreign tourists. “Government investment activity will pick up, in particular due to the absorption of funds from the Recovery and Resilience Plan and the Fund for the Reconstruction of Slovenia, established in response to the 2023 floods”, added Maja Bednaš. Uncertainty and the weak recovery in Slovenia’s trading partners will lead to cautious investment decisions, particularly in the foreign markets-oriented part of the economy. Some impetus comes from lower interest rates, which will have an impact on housing investment in particular, albeit more in the medium term. In 2025, growth in government consumption is expected to moderate compared to last year. As in 2024, we expect the continued recovery from floods to impact growth in general government spending on goods and services (not just on investment). The first effects of the new long-term care benefits implemented in mid-2025 are also expected to emerge.

In our baseline scenario, GDP growth is expected to accelerate slightly (to 2.4% in 2026 and 2.3% in 2027). With the gradual recovery in foreign demand, exports of goods and services are expected to continue growing, albeit at a slower pace than in the period before the pandemic and the energy crisis. In addition to the assumed gradual strengthening of growth in foreign demand, the completion of investments in the pharmaceutical sector and the launch of production of a new car model will have a positive impact on the growth of goods exports, which will also boost growth in value added in manufacturing. Domestic consumption will continue to make an important contribution to GDP growth. Growth in household consumption will be similar to this year and will support further sales growth in trade, accommodation and food service activities, and creative, arts, entertainment, personal and sports activities. Investment growth will continue to strengthen, driven not only by high levels of government investment but also by increased investment in residential construction, and equipment and machinery. The dynamics of government consumption growth in 2026 and 2027 will be influenced primarily by the introduction of new benefits as part of the new long term care system. 

In addition to economic conditions, demographic changes also play a significant role in shaping the labour market. Given the high level of employment and labour shortages, employment growth will be low this year amid moderate economic growth. After stagnating at record levels for most of last year, employment is expected to grow modestly this year, with a potential slight acceleration over the next two years, driven primarily by the employment of foreign nationals. Unemployment will continue to decline slightly, with the number of registered unemployed falling not only due to the transition into employment, but also due to the increasing transition from unemployment to inactivity or retirement. 

Overall growth in the average gross wage will remain relatively high this year (close to 4% in real terms) and is expected to weaken somewhat thereafter, while real growth will be above the levels seen a decade ago. In the public sector, wage growth this year and over the next three years will be influenced by the wage reform implemented on 1 January 2025. The impact will be strongest this year and will gradually decrease in 2026 and 2027, in line with the projected reform dynamics and its estimated effects. In the private sector, wage growth is likely to remain relatively high this year and in the coming years, but is expected to gradually weaken. The upward pressure on wage growth will continue to be significantly influenced by labour shortages and partly also by the demonstration effect of public sector wage increases, while on the other hand, companies’ efforts to remain competitive will result in real growth being more subdued than in previous years. 

Price growth will be subdued in most groups this year, with services prices continuing to rise faster than overall inflation; past and ongoing measures in the energy sector and their phasing-out will have a significant impact on price dynamics, with inflation expected to be 2.7% at the end of 2025 and 2.3% on average in 2025. Assuming a relatively stable situation on the international energy markets, the year-on-year growth in energy prices will continue to fluctuate this year due to the expiry of the temporary measures to mitigate rising energy prices. In particular, the low base effect of the measures taken at the end of last year will drive up year-on-year inflation at the end of this year. Growth in service prices is expected to remain above average this year and in the coming years, with labour shortages and continued wage growth continuing to have a strong impact. The growth in non-energy industrial goods prices will be moderate, keeping core inflation around 2%, supported by relatively higher service price growth. Assuming no major shocks on the commodity markets and moderate climate impacts, growth in food prices is expected to be subdued. In the absence of shocks, inflation will hover around 2% after 2025. 

The preparation of macroeconomic forecasts is always subject to a certain degree uncertainty, which has increased in recent years. This year, in particular, the realisation of the spring forecast is subject to considerable risks, primarily related to the international environment and, to a lesser extent, to the domestic environment. Most risks are tilted to the downside and have intensified compared to the autumn forecast, but there are also some upside risks. “The greatest downside risk to GDP growth from the international environment arises from significantly heightened uncertainty regarding trade policies–partially incorporated in the baseline assumptions–linked to the potential escalation of US protectionist measures and retaliatory actions by affected countries. Such developments could slow the expected gradual recovery of economic growth and the easing of inflation in Slovenia’s trading partners. Additionally, higher tariffs on non-EU countries would further heighten the risk of slower global trade growth, supply chain disruptions, and even stronger spillover effects. At the same time, this could expose European (including Slovenian) economies to greater foreign competition, as trade shifts away from the U.S. to markets where Slovenian companies are more directly or indirectly active," commented Maja Bednaš on the uncertainties in the international environment. If 10% tariffs were imposed, followed by EU retaliatory measures and increased and prolonged uncertainty over trade policies, Slovenia’s economic growth could be around half a percentage point lower. A further increase in existing car tariffs to 25% would amplify this effect. Geopolitical uncertainty also remains high, particularly concerning developments in the Middle East and Ukraine, and there are other risks that could slow European economic growth, which has long been hindered by reduced competitiveness and structural challenges. “The recovery of the European economy will also depend on its ability to address structural challenges in the manufacturing sector (higher energy prices, rapid technological progress, changing consumer preferences and global competition), particularly the automotive industry. A prolonged period of wage growth outpacing productivity, coupled with a shortage of skilled labour, could heighten inflationary pressures in euro area countries, impacting business competitiveness and investment decisions," explained Maja Bednaš. Downside risks also arise from the domestic environment, primarily related to the ability to implement large investment projects and the impact of rising labour costs on competitiveness. Economic growth could also be higher than expected in the baseline scenario, particularly in the case of more successful attracting of workforce and more efficient absorption of EU funds in conjunction with reform measures.