Summary

Against the backdrop of weak economic activity at the beginning of the year, GDP growth in 2025 is expected to remain low, at 1.0%. It is then projected to pick up to 2.2% in 2026 and 2.4% in 2027, before stabilising at 2.1% in 2028. The subdued growth in 2025 was accompanied by a temporary increase in inflation, which is estimated to have stood at 2.5%. As wage growth moderates and productivity strengthens, inflation is expected to decline to 2.3% in 2026 and further to 2.2% and 2.0% in 2027 and 2028 respectively.

Economic developments in the first half of 2025 were strongly shaped by heightened uncertainty surrounding trade policies. This was reflected in particular in postponed corporate investment activity. Uncertainty in the export-oriented part of the economy also spilled over to household confidence and consumption growth, which moderated despite still robust growth in real disposable income. Following a contraction in the first quarter (–0.6%), economic activity rebounded in the second and third quarters, increasing by 0.9% and 0.8% respectively, which was supported mainly by the launch of the government investment cycle. Based on the available data, GDP growth is expected to remain solid, at around 0.7%, also in the final quarter of the year, as indicated by the improvement in economic sentiment. Nevertheless, at 1.0%, economic growth this year will be the lowest since 2020, reflecting weak developments at the beginning of the year.

Over the period 2026–2028, economic growth is projected to strengthen gradually. In 2026, the recovery will largely reflect the role of the government, while from 2027 onwards growth is expected to become more balanced and sustainable. Private consumption growth is expected to realign more closely with disposable income growth in 2026 and to be additionally supported by higher current government expenditure on wages and pensions. Government investment activity will also continue to increase in 2026, primarily in connection with the absorption of EU funds. These will partly spill over into private investment, which will be further supported by the gradual dissipation of uncertainty in the external environment and the effects of past interest rate cuts. Similar factors are expected to support investment growth in Slovenia’s main trading partners, which, together with the stabilisation of conditions in international trade, will strengthen foreign demand. This will support export growth, with net trade therefore expected to make a positive contribution to economic growth again in 2027. Against this background, economic growth is projected to increase to 2.2% and 2.4% in the next two years, before moderating to 2.1% in 2028.

Employment growth is projected to remain weak over the projection horizon. As a result, the expected strengthening of economic growth will depend importantly on labour productivity growth. Amid challenging conditions in manufacturing and the export-oriented part of the economy, employment is projected to decline by 0.5% in 2025, with hiring in the public sector preventing an even larger decrease. As the decline in total employment has largely reflected transitions of workers into inactivity, unemployment is projected to remain low this year, at 3.7%. Low unemployment, together with positive employer expectations regarding future hiring and adverse demographic trends, continues to point to structurally tight labour market conditions. This is expected to constrain employment growth over the projection horizon and to keep wage growth elevated, with developments from 2025 onwards being significantly shaped by the public sector wage reform. Employment is projected to increase by 0.2% this year and by 0.5% in 2027 and 2028. Average nominal wage growth over the projection horizon is projected to stand at 5.4%.

With relatively strong growth in food and services prices persisting, inflation is projected to remain slightly above the 2% target for most of the projection horizon. After declining sharply in 2024, inflation has accelerated again since May 2025. This has been driven primarily by stronger food price growth, reflecting higher global food commodity prices, faster growth in labour costs and, to a lesser extent, the increase in value added tax on sweetened beverages. At the same time, food price growth and, in particular, rising labour costs have also kept services inflation elevated. Taken together, these factors have more than offset the negative contribution from energy prices, which has been shaped by exchange rate movements, falling global oil prices and lower network charges during the high season for electricity prices. With productivity growth expected to strengthen, the gap vis-à-vis wage growth is projected to narrow gradually, thereby reducing labour cost pressures on inflation. At the same time, a stabilisation of imported food prices is assumed. As a result, inflation is projected to decline from 2.5% in 2025 to 2.3% and 2.2% in 2026 and 2027 respectively, before stabilising at 2.0% in 2028.

The projections are subject to risks related to domestic structural challenges and an unstable international environment. The materialisation of these risks could weigh on economic growth, while their impact on inflation would be more uncertain. From the perspective of domestic factors, a strengthening of economic growth is importantly contingent on labour productivity growth. Over the projection horizon, however, productivity growth could remain persistently lower than projected, owing to an inadequate and weak investment growth in the past. Productivity developments over the projection horizon could also be affected by the previously narrow base of economic growth, which since 2023 has relied to a significant extent on cyclical activities and government spending. These factors are expected to contribute strongly to an increase in the general government deficit, particularly in 2025 and 2026, thereby posing a risk to economic growth by reducing the fiscal space for countercyclical action and the ability of fiscal policy to respond to potential new macroeconomic shocks. Similar structural factors, in particular low productivity growth and labour shortages, could also constrain the planned implementation of government investment in Slovenia’s main trading partners, especially Germany. This would delay the expected recovery in foreign demand, which remains exposed to risks related to possible renewed trade tensions. On the inflation side, lower-than-expected labour productivity growth would keep pressures from high unit labour cost growth elevated. By contrast, the materialisation of risks on the activity side and weaker demand could lead inflation to decline more rapidly than projected. Simultaneously, lower economic growth and inflation could also be reinforced by a stronger presence of China and the associated price competition in European markets.

Table 1: Macroeconomic projections for Slovenia, 2025 to 2028

Sources: SURS, Eurostat, Banka Slovenije projections.

Notes: * Based on national accounts deflators. ∆: Difference between current projections and projections given in the June 2024 issue of the Review of Macroeconomic Developments and Projections.

1Current Economic Developments and Assumptions

Following stagnation in the first half of the year, economic activity strengthened markedly in the third quarter of 2025, with domestic demand – in particular the accelerated implementation of public infrastructure projects – offsetting the weakness in exports. Exports remain constrained by the persistent lack of foreign demand, which continues to weigh on conditions in industry. Available short-term indicators and model-based estimates point to a moderate continuation of growth towards the end of the year.

1.1Developments in the international environment and external assumptions

Economic growth was recorded in all major global economies in the third quarter, with the exception of Japan. According to PMI data, growth in global activity is expected to continue in the final quarter.

Following the introduction of US tariffs and the renewed increase in trade uncertainty related to the dispute between the US and China, which reached a temporary trade agreement at the end of October, economic growth across the largest global economies was mixed in the third quarter. In China, quarter-on-quarter GDP growth amounted to 1.1% and exceeded expectations. Growth continued to be driven primarily by net exports, while domestic demand remained weak, reflecting subdued consumer sentiment and the crisis in the real estate sector. In the US, the release of some official statistical data was postponed due to the federal government shutdown. The estimate of GDP growth for the third quarter is therefore expected at the end of December. However, PMI data suggest that economic activity strengthened, as the composite index rose to 54.5 index points in the third quarter. Stronger activity stemmed from an acceleration in services sector growth (54.8) and from robust growth in manufacturing (51.6). Nevertheless, the manufacturing sector continues to face a decline in export orders, which have been contracting since May. In the UK, GDP growth in the third quarter stood at 0.1%, while in Japan GDP declined by 0.6%.

For the fourth quarter, PMI indicators point to a continuation of growth in global economic activity. Although the composite index edged down slightly in November, to 52.7 index points, growth continues to be supported primarily by a strengthening of services activity (53.5), while manufacturing activity continues to show only modest growth (50.5). The presence of short-term risks to global economic activity is indicated by business optimism, which declined in October to its lowest level in the past six months. This likely reflects companies’ expectations regarding the delayed effects of recently introduced tariffs, with global export orders in manufacturing contracting for the eighth consecutive month.

According to the ECB staff December projections, global economic growth excluding the euro area is expected to amount to 3.5% in 2025 and to 3.3% over the period 2026–2028 (Figure 1.1.1, left). Compared with the September projections, growth has been revised slightly upwards, reflecting in particular higher projected economic growth for the US and China, supported by higher fiscal spending.

Euro area GDP growth in the third quarter was supported by investment and domestic final consumption. For the final quarter, survey indicators point to a further increase in economic activity, albeit with risks in manufacturing due to weak foreign demand.

Euro area GDP increased by 0.3% quarter-on-quarter in the third quarter, which was 0.2 percentage points more than in the previous quarter. Growth was supported by investment in fixed capital formation (0.2 percentage points), along with private and government consumption and changes in inventories (each contributing 0.1 percentage points), while net external trade again acted as a drag on growth (–0.2 percentage points). From the production side, growth stemmed primarily from private services. Among the larger euro area economies, Spain and France recorded the highest GDP growth, at 0.6% and 0.5% respectively. In Italy, economic growth stood at 0.1%, mainly reflecting growth in the services sector, while value added in industry declined slightly. Germany stagnated, following a contraction of 0.2% in the second quarter.

Headline inflation in the euro area continues to hover around the inflation target (2.2% in November). Increased activity in services has been accompanied by robust growth in services prices, which has strengthened further in recent months and amounted to 3.5% in November. At the same time, the year-on-year decline in energy prices eased (to –0.5%), while price growth for food and non-energy industrial goods (hereinafter: other goods) moderated (to 2.5% and 0.6% respectively).

Economic activity in the euro area is expected to increase further towards the end of the year. This is indicated by the PMI, which continued to rise in the average of the fourth quarter to 52.4, reaching its highest level since 2022 (Figure 1.1.1, right). Growth continued to be driven primarily by the services sector, while manufacturing output contracted (49.6). The decline in industry reflected weak international demand, which was reflected in a fall in export orders, thereby also slowing the growth of new orders. In line with PMI developments, the euro area economic sentiment indicator also improved slightly in November, driven by a marked increase in confidence in the services sector, while confidence in industry declined and remains below its long-term average.

According to the ECB staff December projections, euro area economic growth is expected to strengthen to 1.4% in 2025 (Figure 1.1.1, left). In 2026, growth is projected to slow slightly, to 1.2%, before reaching 1.4% again in 2027 and 2028. Growth will be driven primarily by rising household purchasing power, somewhat lower uncertainty, and increased spending on defence and infrastructure.

The December assumptions regarding the international environment envisage a recovery in the growth of foreign demand for Slovenia, lower oil prices and an appreciation of the euro against the US dollar.

Growth in foreign demand for Slovenia will remain below its long-term average[1] and will be conditional on economic developments in Slovenia’s main trading partners. Amid persistent trade uncertainty and the spillover effects of weak growth in the second half of 2025, annual growth in foreign demand is expected to moderate slightly in 2026, before accelerating again over the remainder of the projection horizon as global economic activity recovers. Oil prices are expected to remain stable on average over the projection horizon and below EUR 60 per barrel, reflecting subdued global economic activity and demand, exchange rate appreciation, and increasing supply from OPEC member countries. In the initial part of the projection horizon, economic activity will also be supported by a further easing of financing conditions. Compared with the June projections, an additional appreciation of the euro against the US dollar is expected, with the exchange rate hovering around USD 1.2 per euro over the projection horizon (Table 1.1.1).

Table 1.1.1: Assumptions for the international environment

Sources: ECB, Banka Slovenije calculations.

1.2The domestic economic environment

In an environment of still challenging international conditions, domestic economic growth in the third quarter was primarily driven by the implementation of public infrastructure projects.

Quarter-on-quarter growth in economic activity continued in the third quarter (0.8%), while year-on-year GDP growth strengthened to 1.7%, exceeding the euro area average. The higher growth was driven by domestic demand, which increased by 3.5%. In this context, investment in other buildings and structures recorded a marked acceleration, rising by more than one-fifth year-on-year. This development is primarily associated with the accelerated implementation of public infrastructure projects during the summer months, without which economic conditions this year would have been considerably weaker. By contrast, housing investment continued to contract despite the shortage of supply in the market. Investment in machinery and equipment also remained weak, reflecting persistently elevated uncertainty and subdued demand.

Year-on-year growth in final consumption expenditure also remained relatively modest (1.0%). The most pronounced moderation was observed in the consumption of non-durable goods (–1.2%). This coincided with weak sales in food retail trade, which may be linked to the strong increase in food prices that accelerated markedly during the summer months (food price developments are discussed in more detail in Box 1.2.2). To a lesser extent, low consumption growth may also reflect the impact of the new contribution requirements under the Long-term Care Act, which entered into force on 1 July 2025 and contributed to a lower net wage bill in the third quarter.

At the same time, conditions for exporters remained unfavourable, resulting in a markedly negative contribution of net exports to GDP growth (Figure 1.2.1, left). In the third quarter, total exports were 1.1% lower year-on-year. The decline in goods exports intensified further, while growth in services exports was only marginally positive, reflecting less favourable developments particularly in the export of transport services. Imports increased broadly in line with final domestic demand, implying low growth in both goods and services imports.

Growth in value added strengthened in the majority of economic activities, with particularly strong developments recorded in construction.

Value added increased by 2.0% year-on-year in the third quarter of 2025. The stronger outcome compared with the previous quarter largely reflected accelerated construction activity, where, supported by both strong quarterly growth and a low base, year-on-year growth in value added rose to 14.2%. This contributed substantially to GDP growth (Figure 1.2.1, right). Indices of the value of construction put in place indicate a marked acceleration across all construction segments, except for residential buildings.

Value added in private services strengthened by 2.1% year-on-year, with conditions improving across most major activity groups. The exceptions were the trade, transportation and storage, and accommodation and food service sectors, reflecting the slowdown in domestic private consumption and weak goods trade. Stagnation in accommodation and food service activities turnover, despite record tourist arrivals, suggests more cautious spending by foreign visitors compared with the previous year. Growth in value added in public services remained unchanged at 2.1%, as in the second quarter.

Conditions in industry remained challenging. Value added fell by 1.0% year-on-year, reflecting continued contraction in the energy sector. The decline in value added in manufacturing came to a halt, supported in part by high-technology manufacture of computer, electronic and optical products, as well as low-technology manufacture of food and wood products.

Business confidence reached its highest level in almost three years in the middle of the last quarter, supported by improved assessments in construction and manufacturing.

The economic sentiment indicator rose in November by 0.8 percentage points to its highest level since December 2022, surpassing its long-term average (Figure 1.2.2, left). From the beginning of the autumn, construction and manufacturing firms started reporting increased activity and expected hiring in the coming months. Confidence in trade and other services remained relatively high, while consumer confidence strengthened slightly compared with previous months. This also exceeded the long-term average, mainly reflecting improved consumer assessments of their future financial and economic situation. With more favourable expectations regarding future developments, both firms and consumers anticipate further price increases.

Available indicators of domestic demand point to favourable developments in October and weaker dynamics in November. In October, construction activity increased by 35.9% year-on-year. Retail trade turnover also rose, car sales continued to strengthen markedly and the number of tourist overnight stays increased significantly. By contrast, preliminary data for November indicate a slowdown in spending, with the real growth of card payments and ATM withdrawals slowing considerably and the value of tax-verified receipts stagnating (Figure 1.2.2, right). At the same time, some of the more favourable survey assessments in manufacturing had not yet translated into production, which declined by 2.3% year-on-year in October.

The current average of model-based estimates for quarterly GDP growth in the final quarter of 2025 stands at 0.7% (Figure 1.2.3, left). The estimate is mainly supported by improvements in economic sentiment in October and November, as well as by October increases in industrial production, the value of construction work performed and retail trade turnover.

The surplus on the current account of the balance of payments was lower in the first ten months of 2025 than a year earlier, while the surplus in services further slightly increased.

In the first ten months of 2025, the current account of the balance of payments recorded a total surplus of EUR 2.4 billion. This was EUR 406 million lower compared to the same period of 2024 and EUR 560 million below the peak reached in 2020.

The cumulative surplus in merchandise trade was EUR 400 million lower year-on-year, amounting to EUR 210 million. Against the backdrop of a deterioration in the international environment and conditions in Slovenia’s most important trading partners, nominal merchandise exports in the first ten months were broadly unchanged compared with the same period of 2024 (growth of 0.1%), while imports were 1.2% higher. A breakdown by product groups based on SURS data[2] shows that the lower surplus was mainly driven by weaker exports of machinery and equipment (in particular road vehicles to France) and of oil and petroleum products, as well as by higher imports of food, electricity and non-monetary gold. From a regional perspective, the merchandise trade surplus declined most strongly year on year with Croatia and the US, while it increased with Italy and Germany.[3]

The cumulative surplus in services up to October was almost EUR 130 million higher year-on-year, reaching a record level of EUR 3.2 billion. Nominal exports of services increased by 7.0% year-on-year, while imports rose by 8.3%. In year-on-year terms, the surplus in services trade in 2025 was strengthened mostly by exports of insurance and pension services, along with transport services and travel, while from a regional perspective, by trade with Italy. Transport services continue to account for the largest share of the services surplus, at EUR 1.6 billion or almost 50%.

The deficit in income was EUR 136 million larger than in the first ten months of 2024, while its structure changed slightly. The deficit in primary income was EUR 303 million lower and the lowest since 2020, mainly reflecting an improvement in the balance of portfolio investment. At the same time, the deficit in secondary income increased again, by EUR 440 million, primarily due to higher expenditure on current transfers and lower receipts from current international transactions with EU institutions (excluding the ECB).

In the first three quarters of 2025, the terms of trade in goods improved slightly, amid an increase in export prices (0.7%) and stagnation in import prices (Figure 1.2.3, right). The terms of trade in services also improved, as export prices increased somewhat more (3.5%) than import prices (3.2%).

Labour market indicators suggest an increasing divergence between the private and public sectors. In the former, employment continues to decline alongside a deceleration in wage growth, while in the latter strong growth in both wages and employment persists.

The year-on-year contraction in employment in the third quarter, at –0.4%, was 0.1 percentage points smaller than in the previous quarter, while the level of employment, at 1,103,300 persons, was 4,900 persons below the peak recorded a year earlier (Figure 1.2.4, left). Across private sector activities, the decline in employment was broad-based and most pronounced in manufacturing and construction. By contrast, the year-on-year change in the public sector has remained positive throughout the past year and stood at 1.9% in the third quarter.[5]

Lower demand for labour continues to be reflected in a smaller number of job vacancies, which in the third quarter were down by 7.8% year-on-year. By activity, the decline was most pronounced in transport and storage, while, amid strengthened activity growth, it was highest in construction, where labour shortages also remain the most acute. Registered unemployment in November was 0.2% higher than a year earlier, while the registered unemployment rate had stabilised at 4.5% by September and was similar to its level a year earlier. The surveyed unemployment rate stood at 4.2% in the third quarter, 0.2 percentage points lower than a year earlier.

Wage growth, as measured by compensation of employees per employee, amounted to 6.8% in the third quarter, broadly in line with that recorded in the first half of the year and a year earlier (Figure 1.2.4, right). In the private sector, at 6.1%, wage growth was 1 percentage point lower than in the same period of 2024, while in the public sector, at 9.3%, it was almost 4 percentage points higher, reflecting the reform of the public sector pay system. Against the backdrop of strong wage growth in the public sector, real growth in the average wage (3.8%) exceeded productivity growth (2.2%), despite the latter having strengthened.

Inflation decelerated markedly in November, with the slowdown being broad-based.

Headline inflation, as measured by the HICP, decelerated to 2.4% in November, down from 3.1% in October (see Figure 1.2.5, left). The pronounced decline reflects lower contributions from all main components, most notably food prices. These were up 4.7% year-on-year, compared to 6.0% in October, driven particularly by a substantial month-on-month decline in processed food prices. A further easing in annual food inflation is suggested by comparing the three-month average price level with the average of the preceding three-months,[6] as it declined markedly between August and November.[7] Moreover, moderating prices of food commodities on global markets suggest receding pipeline pressures. However, the latter have not yet materialised in producer prices of food products, as their annual growth rate continues to strengthen, in particular as a result of rising prices of animal products and persistent labour costs growth, which supports the gap between domestic and euro area food inflation (its drivers are explained in Box 1.2.2).

Energy prices also contributed to the slowdown in headline inflation in November, as their year-on-year growth declined to 0.7% (down from 2.3% in October). The moderation primarily reflects a less pronounced month-on-month increase in electricity prices at the changeover to the high season for network charge billing compared with the previous year.[8] The easing of energy inflation was supported by month-on-month declines in prices of petroleum products[9] too, partly as a result of cuts in excise duties on petrol, diesel and liquid fuels in mid-November, but primarily due to the continued decline in global oil prices, reflecting increased supply and weak demand.[10]

Core inflation stands at its lowest level in four years, despite still elevated growth in services prices.

Core inflation, i.e. inflation excluding energy and food prices, eased to 1.8% in November, after standing at 2.2% in October. It has not been this low since October 2021, when it last fell below the two percent medium-term monetary policy target. This level masks a large gap between growth in services prices and prices of other goods, which has persisted for more than two years.[11] Services inflation is moderating much more slowly than inflation of other goods; in November, the annual growth rate in services prices remained above 3%, while prices of other goods did not change compared with November 2024. Their annual growth rate slowed for the third consecutive month. Such developments are consistent with an uncertain global economic environment and weak demand, particularly among export-oriented firms. This is reflected in developments in commodity markets and particularly in prices of imported products, which have been declining for more than two years and have been below their 2021 levels since May.[12] However, price developments further along the production chain differ; annual price growth remains weak but positive, thereby reflecting the role of labour costs.

Indeed, a breakdown of the GDP deflator shows that labour costs remain the main driver of price growth in domestically produced goods and services (see Figure 1.2.5, right). Their real growth has exceeded 3% since the second half of 2024.[13] This supports strong growth in services prices, especially in labour-intensive services. Nevertheless, broad-based annual growth in services prices declined slightly in November, to 3.5% (3.7% in October), accompanied by an unusually large month-on-month decline of –0.6% and a weakening of inflation momentum.[14] The expected further easing of services inflation is also supported by weaker demand, as indicated by the slowdown in private consumption growth in the third quarter of 2025. On the supply side, indicators are more heterogeneous: while annual growth in services producer prices has declined, the share of firms expecting an increase in their selling prices over the next three months has increased.

The public finance deficit increased significantly amid a moderation in revenue growth and the implementation of the wage reform.

The consolidated general government deficit amounted to EUR 1 billion in the first ten months of 2025, which is around EUR 450 million more than in the same period of 2024. Over the 12 months to October, it stood at 2.0% of GDP (1.4% of GDP at the end of 2024). The bulk of the deficit originates from the state budget. In the first ten months, this amounted to EUR 912 million, while according to preliminary data it increased to EUR 976 million by November.

Revenues increased by 5.7% year-on-year between January and October. Compared with 2024, the growth of most revenue categories slowed, partly reflecting slower growth in economic activity. The largest decline was recorded in corporate income tax revenues, owing to a lower settlement for 2024. Social security contributions continue to make the largest contribution to revenue growth. Their growth in 2025 is lower due to the transitory effect of the transformation of supplementary health insurance into a mandatory health contribution in 2024, while from August onwards it has been additionally supported by payments of the new long-term care contribution. The 3.8% increase in taxes on goods and services was driven by slightly higher growth in value added tax revenues and higher inflows from the environmental tax on air pollution from CO₂ emissions (which was increased in September last year), while excise duty revenues were lower. Following the indexation of the personal income tax brackets and allowances, the growth of personal income tax revenues was lower. In 2025, a temporary tax on total assets of banks and savings banks was assessed and paid for the first time, intended to finance post-flood reconstruction. Revenues from the EU budget were significantly lower.

Expenditure was 7.5% higher year-on-year over the same period. The largest contribution to the increase came from compensation of employees, which rose by 12.1%, reflecting the implementation of the wage reform, as well as wage adjustment in June 2024, promotions at the end of 2024 and growth in employment. Expenditure on pensions was 7.2% higher, owing to both the regular indexation of pensions and an increase in the number of pensioners. Current payments to other institutions performing public services that are not indirect budget users increased significantly; these include transfers for the provision of public passenger transport services and compensation to the Šoštanj Thermal Power Plant. In the absence of extraordinary measures (related to mitigation of high energy prices and floods), subsidies were lower than a year earlier, while interest payments (4.6%) and capital expenditure and transfers (8.3%) were higher.

2Projections

Following weak economic developments in 2025, GDP growth is projected to strengthen again over the projection horizon, supported primarily by the government investment cycle and the stabilisation of conditions in international trade. In the light of ongoing labour shortages and expected below-average employment growth, the recovery in economic growth will be strongly contingent on an improvement in labour productivity. Stronger productivity growth will also play an instrumental role in containing the impact of elevated wage growth on inflation and supporting convergence towards the 2% price stability objective.

2.1Economic activity

Economic growth will be low in 2025, at 1.0%, and is projected to strengthen again to above 2% over the period 2026–2028. In 2026, the acceleration in growth will be based primarily on the role of the government, while in the subsequent years growth is expected to become more balanced and sustainable.

After modest growth of 1.0% in 2025, GDP is projected to increase by 2.2% in 2026 and by a further 2.4% and 2.1% in 2027 and 2028 respectively (Figure 2.1.1, left-hand panel). The low growth in 2025 reflects the contraction in economic activity at the beginning of the year, which, amid a marked increase in uncertainty, was characterised primarily by weaker investment and subdued household consumption. With a gradual improvement in consumer confidence, economic activity recovered in the second quarter and strengthened further in the third quarter with the launch of a new government investment cycle and a rebound in construction activity. Government investment, supported by accelerated absorption of EU funds, will remain an important driver of economic growth in 2026. As trade uncertainty dissipates and the effects of past monetary policy easing continue to pass through, a more pronounced recovery in private investment growth is also expected in 2026. Strong investment growth, particularly on the government side, is also envisaged in some of Slovenia’s most important trading partners, especially Germany, which, together with the stabilisation of conditions in international trade, will support export demand in Slovenia. In line with this, net trade is expected to make a positive contribution to economic growth from 2027 onwards, more than offsetting the decline in government investment following the expiry of the EU Recovery and Resilience Facility (NGEU). Over the entire projection horizon, private consumption is nevertheless expected to remain the main driver of GDP growth, supported by a robust labour market and the projected continued growth in real disposable income.

Despite the relatively strong rebound in growth in 2026, the underlying narrative surrounding the projections continues to point to only a gradual strengthening of economic activity. A more detailed breakdown shows that around half of the projected growth reflects a technical carry-over effect, or base effect, from the previous year (Figure 2.1.1, right-hand panel). Moreover, projected growth in 2025 and 2026 is heavily conditioned on government activity, both directly, through government investment and consumption, and indirectly through its impact on private consumption growth, which will be driven to a significant extent by wage growth in the public sector and the introduction of the winter allowance. By contrast, conditions in the private sector are expected to remain challenging at the turn of the year. More balanced and more sustainable economic growth from a public finance and external trade perspective is therefore projected only from 2027 onwards.

 

Underlining the deterioration in consumer confidence at the beginning of the year, growth in private consumption is expected to remain relatively subdued in 2025, at 1.5%. Over the remainder of the projection horizon, it is projected to strengthen again to around 2.6%.

Following the strong recovery in private consumption at the beginning of 2024, households continued to record moderate consumption growth over the first three quarters of 2025, despite robust growth in real disposable income. These developments primarily reflect persistently subdued consumer confidence, present since mid-2024, which at the beginning of 2025 was largely associated with elevated unemployment expectations. Business tendency data indicate that, since August 2025, households have become markedly less pessimistic about labour market conditions, which has contributed to an improvement in consumer confidence. This points to a gradual strengthening of private consumption towards the end of 2025, supported by the second tranche of wage indexation in the public sector and the payment of the winter allowance, the effects of which will also strongly spill over into the beginning of 2026. Private consumption growth is expected to reach 1.5% in 2025, which is 0.4 percentage points higher than projected in June. Alongside a further improvement in consumer confidence and the modest tax relief resulting from the partial indexation of personal income tax allowances and tax brackets in line with average wage growth, private consumption growth is projected to reach 3.0% in 2026, before gradually moderating to around 2.4% over the remainder of the projection horizon. This trajectory aligns closely with the foreseen growth of real disposable income over the same period (Figure 2.1.2, left).

The household saving ratio is expected to increase to 15.3% in 2025, which is around 2 percentage points above its long-term average, reflecting subdued growth in private consumption alongside a strong growth in real disposable income. This increase primarily reflects precautionary behaviour by households amid heightened concerns about unemployment in the first half of the year, as well as a stronger orientation towards investment, as indicated by an increase in deposits, a strengthening of investment in financial assets and growth in housing loans. Despite the gradual strengthening of private consumption from 2026 onwards, the household savings ratio is expected to remain relatively elevated. Over the period 2026–2028, it is projected to average 15.0%, which is around 1.7 percentage points above its long-term average (Figure 2.1.2, right).

 

The positive contribution of the general government sector to economic growth through consumption and investment is expected to be more pronounced in the first part of the projection horizon.

Government consumption is expected to grow more moderately in the projection period than last year, averaging 2.2%.[18] It is projected to be highest in 2026, due to further implementation of long-term care entitlements. Slower uptake of these entitlements, particularly in the context of home care, is also the main reason for the revision of real government consumption growth over the projection horizon.[19] In contrast, nominal growth will be high, especially in 2025, at around 10%, mainly reflecting a significant increase in compensation of employees, which, among other factors, captures the effects of the wage reform and the introduction of a new winter allowance entitlement.[20] Government consumption is also rising due to a further increase in the number of employees, which is estimated at just over one percent per year on average. By the end of the projection period, the growth of government consumption is expected to slow as the effects of the implementation of long-term care reform diminish and projects financed under the NGEU programme, expiring in 2026, are gradually completed.

Government investment growth will support economic activity primarily in 2025 and 2026, as the absorption of funds from the NGEU programme is being completed and the effects of the electoral cycle will also be present. In 2027, its contribution to GDP growth will turn negative, reflecting the largely completed investment linked to the NGEU programme and the pre-election period. Investment growth is expected to resume in 2028, when the absorption of EU funds is set to accelerate as the end of financing under the EU financial framework approaches. Over the entire projection horizon, government investment will be underpinned by increased defence expenditure, while investment related to post-flood reconstruction following the August 2023 floods will gradually decline. According to the projections, real government investment growth is expected to reach 6.1% in 2025 and 2.7% in 2026, followed by a decline of 5.9% in 2027 and a renewed increase of 2.0% in 2028. Government investment will remain at a relatively high level, averaging around 5% of GDP.

Private investment is expected to decline slightly in 2025 due to heightened uncertainty in the international environment. Over the remainder of the projection horizon, investment is anticipated to strengthen as the economies of key trading partners gradually stabilise.

Amid heightened uncertainty in the international environment, private investment has been weak in 2025. Given the markedly negative carry-over from 2024, it is expected to decline by 0.3% (see Figure 2.1.3, left). The business investment environment has remained largely unfavourable, with firms in manufacturing citing uncertain economic conditions, as well as insufficient foreign and domestic demand, as the main factors constraining their activity. Consequently, risks to business investment growth, similarly to June, remain tilted to the downside.

Similarly, growth in residential construction remains subdued, and no pronounced recovery is observed in the number of building permits issued, which, according to GURS data, reflects a shortage of buildable land and lengthy permit allocation procedures. Given the unfavourable dynamics of housing investment in the first three quarters of 2025 and the markedly negative carry-over from 2024, housing investment is expected to decline by 9.0% in 2025. Supply side constraints, together with favourable mortgage interest rates and the continued growth in households’ real disposable income, will continue to support persistently elevated growth in residential property prices.

In the period 2026–2028, growth in private investment is expected to strengthen gradually. More favourable borrowing conditions for firms and households compared with previous years, higher expected corporate profits and, as uncertainty fades, a gradual strengthening of activity among key trading partners will play an important role. In 2026, growth in private investment will also be supported by the absorption of funds from the NGEU programme, while their expiry will constrain growth in subsequent years (see Figure 2.1.3, right). Taking these factors into account, growth in private investment is projected at 2.9%, 2.5% and 3.0% in 2026, 2027 and 2028 respectively.

Following a decline in 2025, international activity is expected to strengthen gradually and to make a positive contribution to economic growth again from 2027 onwards.

The export sector is facing a number of challenges and risks, stemming primarily from weaker demand in our key trading partners, protectionist measures in the US and the increased risk of a redirection of Chinese exports from the US to the European market. Accordingly, export activity was weak in the first half of the year (0.5% year-on-year growth), while trends deteriorated further in the third quarter, when real exports were 1.2% lower than in the same period last year. The decline was driven mainly by goods exports, which account for more than three-quarters of total exports and decreased by 0.6% over the first three quarters, while services exports increased by 2.1% year-on-year over the same period. After an initial acceleration at the beginning of 2025, reflecting frontloaded activity in our trading partners ahead of the expected introduction of tariffs, year-on-year growth in global demand slowed markedly in the second and third quarters and is well below long-term averages. Export orders have also declined, while the first signs of an improvement in export prospects are partly reflected in expected production, which has increased in recent months (Figure 2.1.4, left).

Due to subdued foreign demand – particularly from Germany and France – together with stagnating export orders and the appreciation of the exchange rate, export growth is expected to reach 0.2% in 2025. This is 0.6 percentage points lower than the June projection and below the projected growth of foreign demand (Figure 2.1.4, right). In the context of weaker export activity, the projection for import growth has also been revised slightly downwards and is expected to increase by 1.1% in 2025. As a result, the contribution of net trade to GDP growth will remain negative in 2025 (–0.7 percentage points).

In line with the projected developments in foreign demand and relative export prices, export growth is expected to accelerate to 3.1% in 2026 and to strengthen further to 4.9% in 2027, before stabilising at 4.7% in 2028. With the expected recovery in domestic demand, import growth is projected to accelerate to 4.3% in 2026 and 4.5% in 2027, before reaching 4.9% in 2028. Growth in international trade is thus expected to stabilise around its medium-term average over the 2013–2024 period towards the end of the projection horizon.

Given this trend, the contribution of net trade to GDP growth will be negative in 2025 and 2026. Towards the end of the projection horizon, it is expected to improve again, supported by a stabilisation in international trade conditions and a recovery in the growth of foreign demand, and to positively contribute to economic growth in 2027 and 2028 (0.6 and 0.1 percentage points respectively).

Compared with June, the December projection for economic growth is lower by 0.3 and 0.2 percentage points for 2025 and 2026 respectively, while it remains unchanged for 2027.

From a technical perspective, the downward revision to the projection for 2025 primarily reflects a smaller-than-expected revision to first quarter data, which had underpinned the more favourable assessment in the June projections. In addition, the recovery in economic activity over the remainder of the year has been weaker than anticipated (see Figure 2.1.5, left). Both factors reflect the prolonged persistence of trade-related and geopolitical uncertainty, which, relative to the June projections, is manifested in a lower contribution from net trade, partly also owing to weaker out-turns in 2024 (see Figure 2.1.5, right). By contrast, the contribution of gross fixed capital formation in 2025 is somewhat higher than expected in June, primarily due to government investment, which has strengthened from the second quarter onwards with the launch of a new government investment cycle. Despite a more pronounced decline in the first quarter, private investment has proved more resilient to the persistent challenges in the international environment than anticipated in June, which is consistent with the revision to the contribution of changes in inventories. The smaller revision to the contribution of private consumption reflects a partial carry-over from the more favourable starting position in 2024, which mitigates the negative impact of uncertainty on consumer confidence at the beginning of 2025.

Lower-than-expected growth in international trade in the second half of 2025 and a more pronounced appreciation of the euro against the US dollar are expected to result in a slightly smaller contribution from net exports in 2026 compared with the previous projections. This effect will be mitigated to a considerable extent by more supportive growth in real wages and high employment, which are reflected in stronger growth in households’ real disposable income and, consequently, a larger contribution from private consumption.

The projection for economic growth and its decomposition in 2027 remains unchanged compared with the June projection.

2.2The labour market

Employment is expected to decline in 2025. Over the remainder of the projection horizon, it is projected to strengthen slightly again, but growth will not reach its long-term average.

Employment will decline by 0.5% in 2025, mainly reflecting unfavourable conditions in the private sector, where it will contract by 0.8%. By contrast, growth in the public sector will remain robust at 1.2%. In 2026, in line with the expected recovery in economic activity, a gradual improvement in labour market developments is projected. Employment growth will remain modest at 0.2%, and towards the end of the projection horizon it will stabilise at 0.5%, slightly below its long-term average (Figure 2.2.1, left). The relatively modest recovery reflects labour market tightness and mismatches between labour supply and demand. This is partly due to unfavourable demographic developments, which will continue to constrain labour supply in the future. Against the backdrop of weak employment growth and strengthening economic activity, labour productivity growth is projected to exceed the average of recent years over the projection horizon. Driven by cyclical factors related to the strengthening of economic activity, it will be particularly strong over the next two years (Figure 2.2.1, right).

According to the projections, the survey unemployment rate will stand at 3.7% in 2025. The decline in employment this year will therefore not have a significant impact on the unemployment rate, as the reduction in the number of employed persons is largely the result of retirements, which are not reflected in the survey-based unemployment statistics. By the end of the projection horizon, a further slight decline in the unemployment rate is expected, to 3.5%, in line with the strengthening of economic activity. Nevertheless, a more pronounced reduction in unemployment is not anticipated, as according to our projections employment growth will continue to stem primarily from the hiring of foreign nationals and previously inactive domestic residents.

Wage growth will be high in 2025 owing to increases in the public sector. Over the projection period, it is then expected to moderate gradually and align with productivity growth.

Wage growth, as measured by compensation of employees per employee, strengthened again in 2025 and is projected to reach 8.0% (Figure 2.2.2, left). This is largely driven by strong growth in the general government sector, reflecting the implementation of the wage reform and the payment of the winter bonus. Wages in the general government sector are expected to increase by 12.5% in 2025, while growth in the private sector will be significantly lower at 6.7%. In the coming years, overall wage growth is projected to moderate gradually to a level consistent with nominal labour productivity growth. Despite the pronounced increase in wages in the general government sector in 2025, wage growth in this sector will continue to exceed that in the private sector over the remainder of the projection horizon. At the same time, employment in the general government sector will also grow at an above-average rate, which will raise the sector’s share in the total wage bill from 22.0% last year to 24.2% by the end of the projection horizon. As a result, it will approach levels that are primarily characteristic of periods of unfavourable economic conditions. The increase in the share in 2025 will mainly reflect faster growth in the average wage (Figure 2.2.2, right).

2.3Inflation

The projected rise in headline inflation to 2.5% in 2025 is attributable to higher food inflation and a moderation in the year-on-year decline in energy prices.

Headline inflation in Slovenia, as measured by the HICP, stood at 2.0% in 2024; it remained close to this level in the early part of 2025 before accelerating slightly. The acceleration is related mainly to faster year-on-year food price growth and movements in energy prices. Energy prices lowered headline inflation in the early part of the year, but their negative contribution gradually diminished at first and then turned positive again in the final part of the year. The strengthening of year-on-year energy price growth is associated with the resumption of payments of the environmental contribution to electricity prices in July and with current price increases in motor fuels and heat energy. Headline inflation in 2025 continued to be supported by elevated year-on-year growth in services prices. Accordingly, headline inflation is projected to average at 2.5% in 2025 (see Figure 2.3.1).

With slightly lower food and services price inflation, headline inflation will average 2.2% throughout the 2026–2028 period.

Headline inflation is expected to moderate gradually over the remainder of the projection horizon. It will stand at 2.3% in 2026 and then at 2.2% and 2.0% in 2027 and 2028 respectively (see Table 2.3.1). It will be driven mainly by domestic factors related to the pass-through of labour costs into final prices, which will primarily affect developments in services prices. The introduction of the winter allowance will also have an impact, particularly in 2026. In our assessment, it is projected to add between 0.2 and 0.4 percentage points to headline inflation via higher labour costs and consumption. Labour cost growth will also have an impact, albeit to a lesser extent, on food price inflation, which will remain somewhat elevated over the projection horizon but lower than in 2025, primarily because of the expected further increase in wholesale prices of food commodities. The contribution of energy prices to headline inflation will be positive in 2026 and limited over the remainder of the projection horizon. Under the assumption of stable conditions in production chains, prices of other goods are expected to make only a limited contribution to headline inflation over the projection horizon.

Headline inflation in Slovenia is projected to average 0.4 percentage points higher than in the euro area over the 2025–2027 period and to be in line with it in 2028. Food price inflation in Slovenia will be higher than in the euro area[38] throughout the entire projection horizon, which, among other things, reflects faster labour cost growth and a stronger pass‑through of higher wholesale food commodity prices into final prices in Slovenia (Box 1.2.2 compares food price developments in Slovenia and the euro area). Differences between inflation in Slovenia and the euro area will also be shaped by developments in energy prices: energy prices will widen the gap in 2026 and narrow it in 2028. Core inflation in Slovenia will be 0.1 percentage points lower than in the euro area in 2025, 2026 and 2028 and 0.4 percentage points higher in 2027.

Energy prices will decline for a second consecutive year in 2025, while in the coming years their dynamics will be driven mainly by electricity prices.

Similarly to 2024, year-on-year energy price growth was highly volatile in 2025. Between February and September, energy prices were lower year‑on‑year, reaching a low of –6.4% in May, while they have been higher again since October (see Figure 2.3.2, left). Over the projection horizon, year-on-year energy price growth will be driven mainly by electricity prices and the revised methodology for billing network charges. Among other features, the methodology envisages a gradual increase in the tariff rate for the most expensive time block under the 50‑70‑90 model.[39] As a result, the tariff rate for the most expensive time block will be halved in the high season of 2025/26, while faster year-on-year growth in electricity prices during this period will also be prevented by the halving of the environmental contribution for CHP and renewables.[40] Taking these factors into account, energy prices are projected to decline by 1.6% in 2025, marking a second consecutive annual decline.

Year-on-year energy price growth is expected to remain volatile in the coming years. The volatility will be driven mainly by electricity prices amid the gradual introduction of the full tariff rate for the most expensive time block. More precisely, the tariff rate for the most expensive time block will be cut by 30% in 2026 and by 10% in November and December 2027. According to our estimates, these measures will reduce energy price inflation by 0.5 and 0.6 percentage points in 2025 and 2026 respectively and raise it by 0.5 and 0.3 percentage points in 2027 and 2028 respectively. In addition to the administrative measures related to electricity prices, energy prices over the medium term will also be shaped by developments in wholesale oil prices (see Figure 2.3.2, right) and the appreciation of the euro against the dollar (see Figure 2.3.3, left). Accordingly, energy prices are projected to rise by 1.6% in 2026 and to remain broadly unchanged in 2027 and 2028, when energy price inflation is projected at 0.0% and 0.3% respectively.

Over the projection horizon, year-on-year food price inflation will be driven mainly by developments in wholesale food commodity prices and labour costs.

After slowing to 1.9%, year-on-year food price inflation accelerated again in 2025 and is projected to average at 5.1% over the year. This will make food price inflation the largest contributor to headline inflation among all HICP subcomponents in 2025, at 0.8 percentage points. In terms of subcomponents, the faster growth is attributable mainly to developments in prices of beverages, meat, and fruit and vegetables. The higher food price inflation in 2025 is attributable primarily to the increase in the tax on sweet beverages from 9.5% to 22% and the pass-through of higher prices of food commodity inputs and labour costs into final prices (for more on food prices, see Box 1.2.2). Labour costs and wholesale food commodity prices will continue to sustain relatively elevated food price inflation throughout the projection horizon, albeit to a lesser extent than in 2025 (see Figures 2.2.2 and 2.3.3, right). In line with the global food commodity price assumptions and the expected domestic cost pressures, food prices are projected to rise by 3.2% and 3.0% in 2026 and 2027 respectively and by 2.8% in 2028.

Core inflation will be driven mainly by developments in services prices amid low other goods inflation.

Core inflation as measured by the HICP excluding energy and food is expected to stabilise at 2.3% in 2025, after it exceeded headline inflation in 2024 at 2.9%. With other goods inflation remaining broadly unchanged, the slowdown in core inflation in 2025 is attributable to the gradual decline in services inflation. We expect the slowdown trend to come to a halt in the final part of 2026, when year‑on‑year services price growth will strengthen because of a base effect associated with historically strong current declines in services prices in October and November 2025.[41] Developments in services prices over the projection horizon will continue to be driven mainly by the pass‑through of higher labour costs into final prices. Wage dynamics in the public sector will play an important role, particularly via the pass‑through into prices of public services.[42] Accordingly, services inflation is projected to stabilise at 3.9% in 2025 and to moderate slightly to 3.1%, 3.4% and 3.0% in 2026, 2027 and 2028 respectively.

Other goods inflation will be lower than services inflation throughout the projection horizon. Accordingly, year‑on‑year price growth of other goods is projected at 0.5% in 2025 (0.4% in 2024) amid stable conditions in production and supply chains and the appreciation of the euro. In 2026 and 2027, other goods inflation is expected to strengthen slightly, to 0.7%, amid the recovery in domestic demand and investment activity, before easing again to 0.3% in 2028.

In line with the projection for services price inflation and other goods inflation, core inflation is projected at 2.3% in 2025 and slightly lower, at 2.1%, in 2026 because of the base effect in services prices. In 2027 it will temporarily rise to 2.3% amid the continuing pass‑through of higher labour costs into final prices and strengthening in other goods inflation, before moderating to 1.9% in 2028 (see Figure 2.3.4, left).

From the perspective of production factors, based on a breakdown of the GDP deflator, we expect the core inflation to be mainly driven by developments in labour costs over the projection horizon, while the recovery of economic activity will again support it via the positive contribution from unit profits (see Figure 2.3.4, right). Despite the persistent labour cost growth, higher core inflation will be increasingly prevented by the projected strengthening of labour productivity. Core inflation will be lower than growth in the GDP deflator mainly because of improved terms of trade and the higher growth in the government consumption deflator, which to a considerable extent reflects the indexation of wages in the public sector.[43]

The December projection for headline inflation is in line with the June projection for 2025 and slightly higher for 2026 and 2027.

Projected headline inflation for 2025 is in line with our June projections, as the impact of lower year‑on‑year price growth of other goods will be offset by higher inflation in the remaining subcomponents. The revisions to individual subcomponents in 2025 are attributable mainly to deviations of realised inflation from the June expectations, while the impact of changes in technical assumptions is negligible. Headline inflation in 2026 and 2027 is projected to be 0.1 and 0.3 percentage points higher respectively than in the June projections. The revision for 2026 is attributable mainly to the expectation of faster year‑on‑year price growth of other goods, which we associate with rising capacity utilisation and the projected recovery in domestic economic and investment activity, while the revision for 2027 reflects projected higher year‑on‑year services price growth, attributable primarily to the pass‑through of faster labour cost growth into final services prices. This will be particularly pronounced in public services amid strong wage growth in the government sector. In 2027, the larger upward revision to headline inflation is mitigated by the downward revision to energy price inflation, which is primarily attributable to the projected one‑year postponement of the start of emissions trading under the ETS2, from 2027 to 2028 (see Figure 2.3.5).[44]

3Risks and Uncertainties

Risks to economic growth over the entire projection horizon are predominantly on the downside, while risks to inflation are more balanced.

Risks related to protectionism and trade policy uncertainty have eased somewhat compared with the June projections but remain present (Figure 3.1). In addition to trade-related uncertainty, export performance could be weighed down by the increased presence of China in European markets, which may further undermine the export competitiveness of the Slovenian economy. Risks also stem from uncertainty surrounding the assumptions for foreign demand, the growth of which depends to a significant extent on the implementation of the projected infrastructure investment in Germany.[45]

As uncertainty in the international environment gradually recedes, domestic factors are coming increasingly to the fore. These relate primarily to unfavourable structural trends and the risk of lower labour productivity growth, which could deviate from its long-term trend owing to weak past investment in equipment and machinery, adverse demographic developments, and the previously narrow base of economic growth, heavily conditioned on government activity. Government activity will remain an important driver of economic growth also in 2025 and 2026 and will be reflected in particular through rising current expenditure and in a higher deficit, which is projected to remain close to 3% over the projection horizon. Over the medium term, this poses a risk to economic growth, owing to the limited fiscal space for countercyclical action in the event of unexpected shocks. By contrast, in the absence of shocks requiring a fiscal policy response, higher spending on defence and infrastructure at the domestic and EU levels could provide cyclical support to economic activity and thereby raise GDP growth above expectations over the projection horizon. This would be driven in particular by investment in so-called dual-use projects, which are expected to exhibit a smaller import component than purchases of military equipment and generate larger multiplier effects for the economy.

Risks to the inflation projection over the period 2025–2028 are broadly balanced, as domestic inflationary pressures are to a large extent mitigated by disinflationary external factors. Lower productivity growth, which would be reflected in higher unit labour costs, could contribute to inflation remaining persistently above the price stability objective. On the demand side, higher defence and infrastructure spending at the domestic and EU levels could add to inflationary pressures, as, in the context of a tight labour market and capacity constraints, such spending could push up intermediate goods prices and generate additional wage pressures. More pronounced wage pressures could also arise from spillovers of public sector wage increases to the private sector. Risks to higher inflation are also amplified by increasingly frequent extreme weather events, which raise both the volatility and the level of food prices on global markets.

By contrast, a possible intensification of the redirection of Chinese exports from the US to the EU, combined with a continued appreciation of the euro, could contribute to lower growth in import and final prices in European markets. In addition, our previous analyses and those of the ECB indicate that tighter trade policies, through higher import prices, contribute to slightly higher inflation in the short term, while over the medium term their effects are predominantly disinflationary, owing to weaker global demand and lower economic activity.[46]