Economic growth slowed last year to record its lowest rate since 2020. Growth was driven mainly by final consumption, and also by net exports in the second half of the year, while weak investment was a particular limiting factor. Banka Slovenije is expecting economic growth to strengthen to above 2% this year.
Following several years of relatively high economic growth in the post-pandemic period, the rate slowed to 1.6% last year, mostly as a result of a cyclical reversal in investment activity. The latter contracted by 3.7% last year, which was reflected most evidently in the construction sector, where activity and employment both declined last year, following good performance in 2023. Services by contrast remained the principal driver of economic growth last year, and reflected the ongoing favourable developments in private and government consumption. Household consumption increased by 1.6%, as the labour market remained robust and inflation fell further, while government consumption increased by 8.5%.
The data for the final quarter of last year points to a continuation of modest economic growth. GDP rose by 0.6% in the final quarter, a slight increase in pace compared with the previous quarter, taking the year-on-year rate of growth to 1.5%. Current growth in the domestic economy thus outpaced the euro area average by 0.5 percentage points. More tangible signs of recovery are being shown by Slovenia’s exports, which ended the year up 3.9% in year-on-year terms, which was reflected in improved performance in manufacturing, where activity was up 4.2% in year-on-year terms. Amid weak investment and a run-down of inventories, year-on-year growth in imports trailed growth in exports, and the contribution to GDP growth by net trade remained positive, as in the previous quarter. Household consumption was up 1.2% on the same period of the previous year. Government consumption also remained up in year-on-year terms, by 5.7%. Alongside the negative contribution by the change in inventories, the main factor preventing stronger economic growth was gross fixed capital formation, which in the final quarter was still down 5.2% on a year earlier.
Economic growth will recover to over 2% this year, according to Banka Slovenije’s projections. Our expectation is that the recovery in GDP growth will be broadly based. Amid continuing nominal wage growth, and inflation that is in line with the 2% target, the robust labour market will continue to drive growth in private consumption and an improvement in consumer confidence. Domestic demand will be boosted by government consumption, and once again by investment, which in part will reflect expenditure related to the post-flood reconstruction, and the utilisation of EU funds under the current European financial framework and the recovery and resilience facility. Similar factors will be at play in the euro area economy, where our expectation is for a gradual recovery in growth in export demand and private-sector corporate investment. This macroeconomic outlook is accompanied by persistent foreign trade risks and geopolitical risks.