The main focus of discussion at the spring meetings of the IMF and the World Bank Group, which are taking place in Washington, D.C. this week, is the global economic situation. Alongside geopolitical tensions and military conflicts, it is increasingly being affected by the harsher trade policy and other policies being pursued by the US. The increased economic uncertainty has already been reflected in the IMF’s latest projections, which have revised their growth forecasts for the global and European economies downwards.
One finding from the discussions at the meetings is that economic uncertainty has increased even further since the previous meetings. The geopolitical tensions and military conflicts of previous months and years have in recent weeks been joined by the numerous measures imposed by the US administration, which are also undergoing continual change. Banka Slovenije’s assessment is that the uncertainty is comparable to the outbreak of the pandemic or the war in Ukraine.
The increased uncertainty is already affecting the economy, which has been reflected by the IMF in its latest projections, which have cut the economic growth forecasts at the global and European levels and for the vast majority of countries.
The IMF is also forecasting lower economic growth for Slovenia than in its previous projections, with growth of just 1.8% now forecast for this year, instead of 2.6%. Banka Slovenije is also drawing up its latest estimates of the impact on the Slovenian economy from the additional tariffs imposed and announced, which will be presented as part of the forecasts given in our scheduled June projections. As Banka Slovenije’s initial assessments suggest, the effects of any tariffs will mainly be reflected in the Slovenian economy via economic uncertainty, and also indirectly via exposure on European markets and in global value chains.
We are also responding to the current situation as usual on the Governing Council of the ECB. Last week the Governing Council opted for a new interest rate cut of 25 basis points, the seventh cut since last June. The next steps will continue to depend on the situation as it stands at the time, in particular on incoming economic and financial data, developments in core inflation, and the effectiveness of our measures.
Any persistence in the increased uncertainty will gradually be reflected more and more in the banking system. After several quarters of stability, the general level of risk to financial stability in Slovenia has risen slightly this year, although Banka Slovenije should emphasise that the banks’ resilience to systemic risks remains high. In these circumstances it is particularly important that our macroprudential policy remains in a preventive stance, and focuses on maintaining the banking system’s resilience to domestic and external shocks.