The Slovenian economy once against outperformed the euro area overall last year, and has continued to record moderate growth in the early part of this year. Inflation remains at around the 2% mark. Meanwhile the labour market is seeing wage reforms in the public sector, and the first signs of cooling.
According to Banka Slovenije’s latest Review of macroeconomic developments, the survey indicators for the euro area point to a continuation of weak economic growth in the early part of this year. Despite slowing, activity in the service sector remained in the zone of expansion in February, while manufacturing continued to contract, albeit at its slowest pace in nine months. Accordingly the economic sentiment rose slightly. Headline inflation in the euro area rose slightly to 2.5% in January, while core inflation remained unchanged at 2.7%.
Having outperformed the euro area overall once again last year, the economy in Slovenia has continued to grow moderately in the early part of this year. The available data for the first quarter shows solid growth on the domestic market, but a continuation of the difficult situation for exporters, with the nowcasts pointing to quarterly GDP growth of 0.7%.
The situation on the labour market is slightly weaker compared with previous months. The workforce in employment fell significantly in December as a result of people retiring or leaving temporary employment, but remains relatively high. The contraction in employment was particularly evident in manufacturing, while the situation in services remains favourable. The number of vacancies is continuing to fall, and is approaching its pre-pandemic level.
Wage growth slowed in December, and was higher in the public sector than in the private sector after a long period in which the reverse was true. These developments are expected to continue in the future, with public sector wage reforms having come into effect in January. Real wages are continuing to rise as inflation slows, which is strengthening household purchasing power. Our expectation is that a major feature of this year’s wage developments will be an adjustment in the ratio between the public and private sectors, which is examined in detail in a box in the publication.
Inflation (HICP) slowed to 1.9% in February, down 0.4 percentage points on January. The slowdown was primarily attributable to a fall in year-on-year energy price inflation, driven in part by a fall in electricity prices in the wake of the entry into force of the new law curbing network charges. Year-on-year food price inflation strengthened by contrast in February, as did growth in prices of other goods, and service price inflation. The rise in core inflation to 2.2% was broadly based. Service price inflation is prominent: despite gradually slowing, it remains driven by wage developments, and thus continues to be the most important factor in headline inflation.
The consolidated general government surplus in January was down almost a half in year-on-year terms. Growth in tax revenues remained high, while revenues from the EU budget declined. Growth in expenditure was mainly driven by subsidies and investment expenditure.The public finance developments remain exposed to numerous risks, including the international situation, the progress in the post-flood reconstruction, and the reforms currently under preparation.