According to initial assessments, Slovenia continued to see relatively favourable economic growth in the first quarter of this year, while inflation is fluctuating around 2%. Given the increased risks mainly related to US tariff policy, the remainder of the year is considerably more uncertain. The new issue of the Review of macroeconomic developments therefore highlights Slovenia’s economic links with the US. Our finding is that the impact of the tariffs on the Slovenian economy will mainly be felt through economic uncertainty, and the indirect export exposure on European markets and in global value chains.
The latest survey indicators suggest that the euro area saw weak growth in the first quarter, which continued to be driven by services. Despite a slight improvement in the composite PMI, the economic situation remained difficult and uncertain in March, particularly in connection with trade policy, which is also reflected in a further decline in the economic sentiment. Headline inflation in the euro area stood at 2.2% in March, while core inflation stood at 2.4%.
The uncertainty is also affecting the Slovenian economy, where considerable variation between sectors is evident. Given the strengthening indicators of construction activity, and firms’ relatively favourable assessments of final consumption, the economic sentiment improved slightly in the first quarter. By contrast, the situation is worsening in manufacturing, where output over the first two months of the year was down in year-on-year terms. Real consumption indicators are also pointing to a slowdown. Albeit amid a wide range of forecasts, the nowcast is pointing to favourable economic growth in the first quarter for now, although there is considerable uncertainty surrounding the remainder of the year.
The labour market remains tight, despite signs of a slowdown in the private sector. This is being evidenced in a fall in the registered unemployment rate to 5.1%, and the still-positive expectations surrounding future hiring. Together with the implementation of a new wage system in the public sector, the resulting growth in the average wage is holding at close to 7%.
Inflation as measured by the HICP rose slightly to stand at 2.2% in March, up from 1.9% in February. Food price inflation strengthened, in reflection of the situation on global markets and rising prices along food production chains, while energy prices remain down in year-on-year terms. Core inflation picked up to 2.4% (up from 2.2% in February), with service price inflation in particular remaining elevated, amid persistently strong growth in labour costs. Growth in prices of other goods remains relatively low, and in line with its long-term average.
The general government deficit and debt as a ratio to GDP both declined last year, but the uncertainty surrounding the public finances remains elevated. Public finance developments remain subject to numerous risks: external risks posed by geopolitical (increased defence spending) and trade changes (tariffs), and domestic risks in connection with the preparation and implementation of various reforms (pensions, healthcare, long-term social care), increased interest expenditure, and the ongoing post-flood reconstruction.
Geopolitical and trade uncertainty
The recent uncertainty in the euro area and Slovenian economies has primarily been related to economic and tariff policy measures in the US. Although direct trade between the economies of Slovenia and the US is relatively small, our assessment is that the indirect effects of the introduction of tariffs via European markets and global value chains might be more evident. Slovenia has a small and very open economy, and a rise in protectionist tendencies could therefore have a profound impact on it. Approximately 15 thousand jobs in Slovenia depend on trade with the US.
In light of the latest uncertainties in the geopolitical situation, and the related rise in defence spending, Banka Slovenije has also analysed some features of firms in Slovenia’s defence cluster. Our finding is that firms in the cluster come from a variety of economic sectors, with most in manufacturing, and generate approximately 1% of total value-added.
Review of macroeconomic developments, April 2025 | Banka Slovenije