Autumn Forecast of Economic Trends 2023
Economic growth is slowing this year, especially in the export-oriented part of the economy, growth in private consumption is also lower than last year, while construction investment continues to increase. In its Autumn Forecast, the Institute of Macroeconomic Analysis and Development (IMAD) forecasts real GDP growth of 1.6% this year. This is slightly lower than what was predicted in the spring (1.8%), with the level and structure of GDP having changed significantly since the last forecast. In nominal terms, the forecast is heavily influenced by the revised base following the release of the first annual estimate of GDP for 2022 by SURS, which lowered the initial estimate of nominal GDP based on quarterly data by almost EUR 2 billion. Movements in real growth rates are affected in particular by the slowdown in the economies of Slovenia’s main trading partners, which is more pronounced than expected in the spring. The forecast is also affected by changes in the real growth of some aggregates in the release of the first annual estimate for last year, in particular private consumption, and value added in manufacturing and construction. There have also been some changes in the indicators of household saving rate, which is now much higher, and productivity, especially in manufacturing, which has declined. This also significantly changes the basis for the preparation of the forecast, as it suggests that the impact of the loss of purchasing power was greater and that households were even more cautious in their spending than initially assumed, and that cost pressures had a greater impact on activity in the predominantly export-oriented part of the economy. Growth in exports of goods and services will therefore lag somewhat behind that of foreign demand this year. We expect construction investment to remain high, but to weaken. Elimination of the consequences of the August floods will have a favourable impact on construction activity. We estimate that the direct negative impact of the floods on manufacturing and transportation activity and on exports will be temporary and, although significant at local levels, will not have a major effect at the macroeconomic level. Private consumption growth will be lower than last year. We expect moderate growth in the second half of the year, driven by high employment, continued moderate real wage growth and government measures to mitigate rising energy costs and eliminate the consequences of natural disasters and to a smaller extent also by the replacement of goods damaged in the August floods. In 2024, GDP growth is expected to return to slightly higher levels (2.8%). With a gradual strengthening of external demand growth, we expect a renewed growth in exports, a strengthening of growth in value added in manufacturing and continued growth in trade in services. For 2024, we forecast further growth in investment, boosted by the recovery and reconstruction after this year’s floods and a renewed growth in business investment in machinery and equipment. Growth in employment and decline in unemployment will further moderate by the end of this year, and severe labour shortages will not allow for stronger employment growth in the coming years. Inflation is expected to continue to weaken over the rest of the year, although less markedly than in previous months. It could only gradually decline towards 2% by the end of 2025. The uncertainties surrounding this forecast arise mainly from the international economic environment, where activity is weakening, the broader economic impact of the recent floods in Slovenia, the pace of inflation moderation and the impact of deteriorating cost competitiveness on the export-oriented part of the economy.