According to the available data, last year ended with the domestic market in relatively good economic shape, while conditions for exporters remained challenging. Inflation strengthened slightly, driven by rises in service price inflation and other goods inflation, but food prices have remained broadly unchanged in recent months. Meanwhile labour market tightness is becoming less pronounced, and there are signs of the labour market cooling. Another highlight of the latest Review of macroeconomic developments is analysis showing that the pharmaceutical sector has become one of the main pillars of industry in Slovenia.
According to the monthly indicators, the euro area economy continued to grow in the final quarter of last year. January’s PMIs meanwhile point to a continuation of growth in the early part of this year. Services remained the main engine of expansion, while the contraction in manufacturing eased slightly. The downside risks to growth in manufacturing nevertheless remain elevated. Foreign demand remains weak, and export orders are falling.Together with a weakening in the majority of price factors, this is also being evidenced in euro area inflation. Headline inflation slowed to 1.9% in December, and core inflation to 2.3%.
The available data for the domestic economy points to a relatively favourable picture at the end of last year and the early part of this year. This is confirmed by the gradual improvement in the economic climate, a considerable year-on-year increase in construction activity driven by government investment, good performance in tourism, and favourable indicators of spending on the domestic market, which coincided with the payment of the mandatory Christmas bonus. The situation in manufacturing remained challenging by contrast, although firms are more optimistic than they were a year ago. Thanks to the favourable developments on the domestic market, the nowcasts are pointing to quarterly economic growth of 0.9% in the final quarter, in line with our latest projections.
The labour market is gradually cooling. The workforce in employment in November was down in year-on-year terms, while the number of registered unemployed was up in year-on-year terms for the fourth consecutive month, with a notable rise in youth unemployment, which might be indicative of a slowdown in the demand for labour. Nevertheless firms are still reporting labour shortages, which they are partly mitigating through increased hiring of foreign workers. Wage growth slowed to 2.9% in November, largely as a result of lower bonus payments in the private sector.
Headline inflation as measured by the HICP strengthened to 2.6% in December. The rise was attributable to an uptick in core inflation, which was driven in approximately equal measure by increases in service price inflation and other goods inflation. The main factor keeping service price inflation elevated is high wage growth, which on one hand is maintaining domestic consumption at a relatively high level, and on the other is driving up labour costs. The easing situation on global food commodity markets is being reflected, with a lag, in food prices: they have stabilised over recent months, but the year-on-year rise remained high at 4.6% in December.
On this occasion Banka Slovenije has also drawn up special analysis using a web scraping approach, which revealed that interest in inflation-related topics in Slovenia strengthened after the pandemic amid surging prices, and remained elevated even as headline inflation slowed.
The general government deficit is widening, and last year doubled to 2.4% of GDP. Growth in general government revenues slowed, and was outpaced by growth on the expenditure side. The largest factors in the rising expenditure were wages and transfers to individuals and households, but there was also high growth in investment. The state budget deficit and the consolidated general government deficit are forecast to widen this year according to the government plans, which is reducing the space for countercyclical fiscal policy to act in the event of any major shocks.
Rising importance of pharmaceuticals in Slovenia’s economic performance
The latest issue of the Review of macroeconomic developments also looks at the rising importance of the pharmaceutical industry, which has become one of the main pillars of industrial activity and economic growth in Slovenia. Its importance to the national economy, as measured by its share of value-added and employment, is one of the highest in the EU.
Publication Review of macroeconomic developments, January 2026, undergoing translation.