Development Report 2019: The gap with the EU average in terms of economic development is gradually narrowing; to ensure sustainable development and quality of life over the long term, more permanent measures will be required

Since 2016 Slovenia has again been narrowing its development gap with the EU average, social inclusion of the population remains relatively high, while the efficiency of energy and resource consumption has improved somewhat. These are the key findings of this year’s Development Report of the Institute of Macroeconomic Analysis and Development. In certain areas, developments deviate from the principles of sustainable development and pose a risk to the achievement of the primary objective of the Slovenian Development Strategy 2030. For effective dealing with key development challenges, the report pays special attention to recommendations for development policies. In our view, these should be focused on acceleration of productivity growth, adjustment to demographic change and strengthening the development role of the government and its institutions, while striving to reduce the environmental burden.

The Development Report 2019 presents an overview of developments according to strategic orientations set out in the Slovenian Development Strategy 2030 (SDS) adopted by the government of the Republic of Slovenia in December 2017. The basic structure of the report follows the five strategic orientations identified in the SDS as crucial for achieving its primary goal, i.e. to ensure a high quality of life for all. These are: (i) a highly productive economy that creates value added for all; (ii) lifelong learning; (iii) an inclusive, healthy, safe and responsible society; (iv) a well-preserved natural environment; and (v) a high level of cooperation, competence and governance efficiency.

Since 2016 Slovenia has again been narrowing its gap in economic development with the EU average, social inclusion of the population remains relatively high, while the efficiency of energy and resource consumption has improved somewhat. After the stabilisation of public finances and the banking system, which were heavily disrupted during the crisis, the economy has been rapidly recovering against the background of favourable international developments and improving export competitiveness. The recovery has mainly been based on the upturn of the export part of the economy. In the recent period domestic consumption has also started to increase more noticeably. The improvement in economic conditions was followed by growth in household income, which was the highest in lower income brackets. Policy measures and increased hiring in favourable economic conditions contributed to a decline in long-term unemployment and a rapid inclusion of population groups that were less represented on the labour market during the crisis (young people, older people and low-skilled people). The risk of social exclusion and income inequality have thus fallen to pre-crisis levels and remain relatively low by international standards. With the economic uptick, the consumption of resources and energy has increased, yet less than gross domestic product. This indicates a further improvement in the efficiency of their use, though this is relatively slow.

In certain areas developments deviate from the principles of sustainable development and pose a risk to the achievement of the SDS’ primary objective. Productivity growth, which is essential for raising the living standard of the population over the long term, has remained modest during the economic upturn. Developments in the field of innovations – which are the most important factor of long-term productivity growth – have been negative. Social protection systems are insufficiently adapted to demographic change, which increases pressures on their financial sustainability and limits the possibilities for ensuring high-quality public services for the population. From the perspective of creating an inclusive society, particularly the persistently high labour market segmentation of young people and the low economic and social inclusion of older people stand out as problematic. Progress in healthy life expectancy is relatively slow, the main challenges being the shortening of waiting periods in healthcare and a further improvement in the lifestyles of the population. From the environmental point of view, the sustainability of development is negatively marked by Slovenia’s high carbon footprint, particularly the rising GHG emissions from transport, the share of renewable energy sources remaining unchanged for several years, and unsustainable use of land. 

In previous years Slovenia has been relatively successful in solving short-term problems related mainly to the consequences of the crisis, but in the future more permanent measures for improving the long-term sustainability of development and quality of life will be required. Development policies should be focused primarily on the following:

-   Acceleration of productivity growth for economic progress and higher living standards of the population. It is essential to strengthen long-term productivity factors, particularly by (i) investment in R&D to support high-quality research work and stable, long-term measures for fostering innovation and accelerating the digital transformation of the economy and society, (ii) a more rapid adjustment of education and training programmes to labour market needs and technological changes, and (iii) increasing lifelong learning;
-   Adjustment to demographic change to ensure a decent life for all. The emphasis should lie on (i) reforming social protection systems to ensure sufficient funding, (ii) strengthening lifelong learning, (iii) promoting a healthy lifestyle, (iv) adapting working and living environments, and (v) securing a sufficient supply of appropriate workforce;
-   Transition to a low-carbon circular economy to reduce the environmental burden and increase the competitiveness of the economy. This requires a shift towards more sustainable production and consumption patterns, especially (i) by a more efficient exploitation of natural resources, (ii) with a sustainable mobility, and (iii) by education and raising awareness of the population of the urgency of changes towards sustainable development;
-   Strengthening the development role of the government and its institutions by (i) improving the strategic governance of public institutions, (ii) improving the legislative and business environment, and (iii) restructuring general government revenue and expenditure to respond to development challenges.