Summary

Growth in domestic economic activity is expected to have persisted in the first quarter, albeit amid signs of moderating consumption and weak industrial production. Risks to economic activity and inflation have increased in the context of heightened geopolitical tensions.

According to survey indicators, economic growth in the euro area slowed in March, primarily as a result of the conflict in the Middle East.  The slowdown originated in the services sector, amid weaker demand and increased uncertainty, which is also reflected in the deterioration of economic sentiment in this segment and among consumers. Meanwhile, conditions in manufacturing improved somewhat, at least temporarily; however, risks intensified due to higher cost pressures and disruptions in supply chains, which contributed to a decline in business optimism among firms. According to the ECB’s March projections, economic growth in the euro area is expected to slow this year due to the conflict in the Middle East, with the baseline scenario projecting growth at 0.9%, which is 0.3 percentage points lower than in the December projections. Inflation is projected at 2.6% for this year, which is 0.7 percentage points higher than in the previous projections.

At their March meetings, both the ECB and the Fed left their key interest rates unchanged. The ECB Governing Council justified its decision by assessing that inflation is hovering around the 2% target and that the ECB’s monetary policy is well positioned to respond appropriately to any potential intensification of the energy shock and its effects on price developments. Due to higher energy prices, market expectations regarding further reductions in the Fed’s key interest rate this year have diminished, while for the ECB, two increases of 25 basis points each are anticipated.

Since the beginning of March, developments in financial markets have been shaped primarily by the outbreak of the war in the Middle East. Yields on US and German government bonds rose significantly in March, reflecting heightened expectations of monetary policy tightening by central banks in response to increased inflationary pressures stemming from disruptions in energy supply. At the same time, major global equity indices declined as investors shifted away from riskier assets, while the value of the US dollar and oil prices strengthened. Following the commencement of peace negotiations between the US and Iran in early April, sentiment in financial markets improved, leading to a decline in government bond yields, an increase in major equity indices, and a depreciation of the US dollar against most major global currencies.

Available data for the first quarter indicate a continuation of growth in domestic economic activity, with signs of a moderation in domestic consumption. According to our short-term forecasting models, quarterly growth is expected to amount to 0.4%, while year-on-year growth will be higher due to last year’s low base. The economic sentiment has deteriorated compared with the end of last year, mainly as a result of a decline in confidence in manufacturing in February. The direct impact of the war in the Middle East has so far been reflected only in a marked increase in consumer inflation expectations in March, while broader economic effects could intensify later in the year. High-frequency indicators of domestic market consumption and certain survey-based assessments of demand suggest a moderation in spending as early as the first quarter. At the same time, industrial activity remains weak, in recent months also due to a decline in pharmaceutical production. Additional risks for exporters stem from foreign demand, namely an increase in bankruptcies among key European trading partners and growing competitive pressures from China across all segments of technological sophistication.

Merchandise trade contracted in both exports and imports in the first two months of the year, with real exports declining and real imports stagnating. Merchandise exports fell to the main partner countries, Germany and Austria, while the decline in imports was mainly attributable to lower imports of energy products. The outlook is also unfavourable, as export orders and consumer confidence in our key export markets do not indicate a strengthening of foreign demand in the coming months, while industrial firms in our key EU import markets report an expected increase in selling prices of goods. By contrast, services trade remains robust and continues to strengthen. Growth in services exports was driven primarily by tourism and exports of insurance services.

Divergence between the public and private sectors persists in the labour market at the beginning of the year, while cost pressures on competitiveness are also strengthening amid a renewed acceleration in wage growth. The number of persons in employment remained almost unchanged year on year in February, increasing further in the public sector but declining in the private sector, particularly in manufacturing. Growth in the number of older persons in employment continues to make a significant contribution to overall employment dynamics, driven primarily by demographic factors and later retirement. Registered unemployment remains low, although survey-based unemployment increased slightly at the end of last year. Wage growth accelerated again in January, largely due to a 16% increase in the minimum wage, which was the second highest increase in the past two decades and among the highest in the EU this year. Against the backdrop of already elevated growth in labour costs and relatively weak productivity, this is further intensifying pressures on the cost competitiveness of the economy.

Headline inflation, measured by the HICP, slowed to 2.4% in March. The deceleration was due to lower year‑on‑year growth in food and energy prices. The slowdown in energy inflation primarily reflects developments in electricity prices, while the pass‑through of higher wholesale oil prices to final motor fuel prices was partly contained by government measures in the first part of the month. Core inflation remained unchanged at 2.3%. It continues to be supported primarily by services prices, while the growth in prices of other goods remains subdued. Higher wholesale energy and fertiliser prices will pose a risk of renewed inflationary pressures in the coming months, as higher costs may gradually be passed through along the production and supply chains to final prices of goods and services.

The war in the Middle East has heightened fiscal risks, with the general government deficit already having increased to 2.5% of GDP last year, while the debt-to-GDP ratio declined to 65.7% due to the nominal effect of economic growth. The increase in the deficit reflects robust growth in government expenditure, driven primarily by social benefits, compensation of employees, and gross fixed capital formation, which reached a historically high share of GDP. The implementation of the wage reform this year is further increasing consolidated general government expenditure and contributing to a continued rise in the deficit. Revenue growth moderated last year, while in the first quarter of this year it was mainly supported by social security contributions and value added tax. The war in the Middle East has worsened the fiscal outlook due to its impact on economic growth and the implementation of energy measures, which must be temporary and targeted.

1International Environment

Global economic growth slowed in March due to higher energy prices and increased uncertainty, resulting from the conflict in the Middle East.

Following a favourable start to the year, global economic activity growth slowed in March, according to survey indicators. This is evidenced by the decline in the composite PMI to 51 index points; a significant factor behind the deterioration was the outbreak of conflict in the Middle East (Figure 1.1, left). The average value of the indicator in the first quarter stood at 52.3 index points, which still suggests relatively favourable growth in the global economy. In March, growth in the services sector slowed markedly, reflecting weaker demand amid heightened uncertainty. Growth also eased somewhat in manufacturing, primarily due to increased cost pressures, longer delivery times and a pronounced deterioration in business expectations for the next twelve months, which fell to their lowest level in the past five months. Nevertheless, growth in manufacturing for the first time since the end of 2022 once again exceeded growth in services.

With the continuation of the conflict in the Middle East and the closure of the Strait of Hormuz, uncertainty and risks to global economic activity remained elevated. This is reflected in energy prices, which, compared to pre-conflict levels, peaked at 72% higher for oil and 90% higher for European natural gas (Figure 1.1, right)[1]. Although prices eased somewhat following the announcement of a two-week ceasefire, uncertainty regarding further disruptions to energy supply remains substantial.

According to the ECB’s March projections, global economic growth excluding the euro area is expected to be 0.3 percentage points lower this year than last year. Growth is projected at 3.3% in 2026, and at 3.2% and 3.3% in 2027 and 2028, respectively. The lower growth will mainly be attributable to the conflict in the Middle East and the associated higher prices of energy commodities, tighter financing conditions and increased uncertainty, which will dampen consumption, investment and trade activity. These factors will offset part of the previously favourable effects linked to stronger growth at the end of 2025, investments in artificial intelligence, and somewhat lower US tariffs following the US Supreme Court ruling.

Due to the conflict in the Middle East, economic growth in the euro area also slowed in March, accompanied by a deterioration in growth prospects.

Survey indicators show that economic growth slowed in March due to the conflict in the Middle East. The composite PMI declined to 50.7 index points (figure 1.2, left); its average value in the first quarter was lower than in the previous quarter. The increase in energy prices and heightened uncertainty among consumers were reflected in a sharp decline in the services indicator in March. By contrast, conditions in manufacturing improved somewhat further, mainly owing to growth in new orders, while risks to continued growth on the supply side increased significantly. This is evident in longer delivery times for input materials and disruptions in global logistics flows. Consequently, cost pressures intensified, as growth in input costs accelerated to its highest level since October 2022. Business optimism also deteriorated, reaching its lowest level in the past five months and reflecting greater caution among firms.

The European Commission’s Economic Sentiment Indicator also declined in March (figure 1.2, right). The most pronounced deterioration in sentiment was observed among consumers and in trade and services, whereas manufacturing and construction have not yet experienced a decline. The ZEW Economic Sentiment Indicator also fell sharply, reaching its lowest level in the past eleven months.

According to the ECB’s March projections, economic growth in the euro area is expected to be 0.3 percentage points lower this year compared to the December 2025 projections. Growth is projected at 0.9% in 2026, strengthening to 1.3% and 1.4% in 2027 and 2028, respectively. The downward revision is mainly attributable to heightened tensions in the Middle East and, consequently, higher energy prices and increased uncertainty. These factors will dampen economic growth, particularly in the short term, through reduced household purchasing power and more restrained consumption and investment. In the medium term, growth will continue to be primarily driven by domestic demand.

Given the considerable uncertainty regarding the duration of the energy shock, developments in energy prices, and the effects on external trade and investment, two alternative scenarios were prepared in addition to the baseline scenario. The adverse scenario indicates that economic growth in the euro area would be approximately 0.3 and 0.1 percentage points lower this year and next year, respectively, compared to the baseline scenario; in 2028, growth would exceed the baseline by 0.2 percentage points. The severe scenario suggests that growth in 2026 and 2027 would be 0.5 and 0.4 percentage points lower, respectively; in 2028, it would exceed the baseline by 0.5 percentage points.

Headline inflation in the euro area surged in March exclusively due to higher energy prices linked to the war in the Middle East.

Year-on-year price growth in the euro area, as measured by the HICP, strengthened by 0.7 percentage points to 2.6% in March (Figure 1.3, left). The increase was driven solely by energy prices, while both core inflation and food price growth declined. Energy prices were 5.1% higher year-on-year, after having been 3.1% lower in February. The reversal in annual growth mainly reflects the ongoing increases in motor fuel prices associated with the war in the Middle East, and to a lesser extent, a positive base effect.

Conversely, year-on-year food price growth slowed to 2.4% (2.5% in February).  Processed food price growth declined for the sixth consecutive month and reached 1.7%, reflecting continued moderation in global food commodity prices. Similarly, year-on-year growth in unprocessed food prices fell to 4.2%, which is 0.4 percentage points lower than in February. In the coming months, higher cost pressures related to the ongoing increases in energy and fertiliser prices could be reflected in food prices.

Core inflation, i.e. inflation measured excluding energy and food prices, declined by 0.1 percentage points to 2.3% in March. The decrease was mainly driven by a slowdown in services inflation, which, at 3.2%, was 0.2 percentage points lower than in the previous month. The indicator of inflation momentum for services also declined for the third consecutive month,[2] coinciding with an easing of domestic price pressures. ECB indicators continue to signal normalisation of wage pressures for this year, which could contribute to a gradual moderation in services price inflation. Year-on-year growth in non-energy industrial goods (hereinafter: other goods) prices fell to 0.5% (0.7% in February), remaining close to the pre-pandemic long-term average. The movement continues to reflect weak import price pressures, linked to the appreciation of the euro and imports of cheaper products from China.

Headline inflation in Slovenia was 0.2 percentage points lower than in the euro area in March, mainly due to a lower contribution from energy prices, while core inflation rates were aligned. The range of headline inflation rates among euro area member states amounted to 3.1 percentage points, with average inflation accelerating due to higher energy price growth. The latter differed across countries also due to varying tax measures.  The largest increase in year-on-year energy price growth in March was recorded in Luxembourg, while Slovenia was the only country to register a decrease (Figure 1.3, right; see Box 6.1 for further details on recent energy inflation developments in Slovenia). The highest headline inflation was recorded in Croatia (4.6%), while Cyprus again registered the lowest (1.5%).

2Monetary Policy and Financial Markets

In March, the Eurosystem maintained the interest rate on the marginal deposit facility at 2.00%, while the Fed kept its key interest rate within the corridor of 3.50% to 3.75%.

In March, the ECB Governing Council left all three key interest rates unchanged. The interest rates on the deposit facility, main refinancing operations, and the marginal lending facility thus remain at 2.00%, 2.15%, and 2.40% respectively. According to ECB experts, the macroeconomic outlook has become considerably more uncertain due to the war in the Middle East. They remain attentive to further geopolitical developments and their implications for price dynamics. Inflation is hovering around the 2% target, longer-term inflation expectations remain well anchored for the time being, and the economy has demonstrated resilience in recent quarters.

At its March meeting, the Fed kept its key interest rate within the range of 3.50% to 3.75%, reflecting uncertainty regarding the impact of the conflict in the Middle East on the long-term inflation outlook in the US. Key interest rates also remained unchanged at the March meetings in the United Kingdom (3.75%), Switzerland (0%), Canada (2.25%), Sweden (1.75%), and Japan (0.75%). In contrast, the central bank of Australia raised its key interest rate by 0.25 percentage points to 4.10%, in response to persistently elevated inflationary pressures.

Since the beginning of March, expectations that inflation could remain persistently elevated have strengthened due to disruptions in energy supply. As a result, investors anticipate that central banks will maintain their current monetary policy stance or tighten it further if necessary. Based on current overnight index swap (OIS) rates, financial markets now expect two increases of 0.25 percentage points each in the ECB’s key interest rates by the end of 2026, which would bring the deposit facility rate to 2.50% (Figure 2.1, left). For the Fed, market participants expect the key interest rate to remain within the range of 3.50% to 3.75% throughout this year.

The main global equity indices declined following the outbreak of war in the Middle East but subsequently regained most of their lost value after negotiations to end the conflict commenced. Energy prices remain elevated.

Amid heightened expectations of persistently higher inflation and a more restrictive monetary policy stance by the ECB and the Fed, yields on German short-term government bonds increased by 0.52 percentage points and those on US short-term treasuries by 0.40 percentage points since the beginning of March (Figure 2.1, right). Yields on long-term government bonds rose similarly, by 0.39 percentage points for German bonds and by 0.38 percentage points for US treasuries. The upward trend in government bond yields was interrupted following the agreement between the US and Iran on a two-week ceasefire and the commencement of negotiations to end the conflict. This also led to a decline in the spreads between yields on euro area bonds with higher credit risk and German government bonds, which had been elevated in March due to investors shifting out of riskier assets.

The outbreak of the war in the Middle East, together with expectations of higher key interest rates, contributed to a decline in most major global equity indices in March (Figure 2.2, left). Following the agreement between the US and Iran on a two-week ceasefire and increased optimism regarding a peaceful resolution of the conflict, the main equity indices largely recovered the losses incurred in March. The leading US index, the S&P 500, has gained 2.4% in value since the beginning of March and is currently at record highs, while the index comprising the seven largest US tech firms (the Magnificent Seven) has risen by 6.6%. The main European index, STOXX Europe 600, which reached a historic high at the end of February, has declined by 2.7% since the beginning of March. The tech-oriented Hang Seng index in Hong Kong lost 6.4% of its value in the first half of March amid heightened geopolitical tensions, but rebounded following a partial easing of the situation in the Middle East and is currently only 1.9% lower than at the beginning of March.

The value of the US dollar against the euro initially increased following the outbreak of the war in the Middle East and a shift by investors towards safer currencies but subsequently lost these gains after the aforementioned two-week ceasefire. The dollar moved similarly against a basket of the world’s major currencies and is currently 0.7% higher than at the beginning of March (Figure 2.2, right). The price of gold has declined by 9.3% since the beginning of March, reflecting higher government bond yields and strengthened expectations of a more restrictive Fed policy. The price of Brent crude oil rose by 63.3% in March but fell by 16.9% following the agreement on a temporary ceasefire at the beginning of April.

3Domestic Economic Activity

Contrary to expectations, further escalation of global geopolitical tensions in March has not yet affected the domestic economic sentiment.

Although the war in the Middle East has increased uncertainty in the global economy and caused a shock in certain key supply chains, the value of the economic sentiment indicator in Slovenia even rose slightly in March compared with February (Figure 3.1. left). This was attributable to an improvement in the retail trade confidence indicator, while there were no significant changes in sentiment in other activity groups or among consumers. Nevertheless, the economic sentiment in the first quarter was weaker than at the end of last year, primarily due to a decline in confidence in manufacturing.[3]

Survey-based indicators of demand show that conditions in activities primarily oriented towards the domestic market have remained solid. Demand continues to be relatively strong in private services, while in construction it has been gradually moderating for several months (Figure 3.1, right). Despite this, in March construction companies assessed the level of activity as the highest since May 2023. The business environment remains challenging in the export-oriented goods sector, as confidence in manufacturing, amid persistently weak demand, was again lower in March than in the previous year.

Consumer confidence remained at a relatively high level in March. Compared with last year, assessments of the expected financial situation of households and the general economic situation in the country continued to be more favourable. At the same time, however, consumers have become more concerned about inflation in light of the first signs of a new energy crisis, as the indicator of expected price developments over the next 12 months increased by 11 percentage points compared with February. It reached 63 percentage points, the highest level since July 2022, when the peak in post-pandemic price growth was recorded at 11.7%.

Available data for the first quarter indicate a moderation of activity in the domestic market and a continuation of weak industrial production.

High-frequency indicators point to a slowdown in spending growth in the first quarter. The real value of card payments and ATM withdrawals was 2.9% higher year-on-year, which is 1.5 percentage points less than in the final quarter of last year. The deviation is even greater in the real value of fiscally verified receipts (Figure 3.2, left). This was mainly due to a weaker February, while consumption is estimated to have picked up again in March, which may be partly related to precautionary fuel purchases following the attack on Iran.

Monthly activity indicators show continued growth in revenues in private services and a moderation of activity in construction (Figure 3.2, right). Total revenues in private services were 2.1% higher year-on-year in January, with considerable differences across activities. Activity was relatively weak in trade as well as in transport and storage, while it was stronger in accommodation and food service activities and even more so in real estate activities. Construction activity, which is characterised by pronounced volatility, increased on a monthly basis in February after several months of decline. In the first two months, it was 16.8% higher year-on-year, mainly due to the implementation of government infrastructure investment, given last year’s low base.

Conditions in industry remain unfavourable, as negative trends have persisted for an extended period (Figure 3.2, right). Industrial production in January and February combined was 4.2% lower year-on-year, with declines recorded in numerous key sectors, including energy. High-technology production has also frequently contributed to aggregate declines since last year, with our rough estimates indicating that activity in the pharmaceutical industry was particularly weak in January.[4] In terms of technological intensity, activity in the first two months was higher year-on-year only in low-technology production, primarily due to growth in the food industry.

4Labour Market

The labour market remains tight and continues to be characterised by divergence between employment developments in the public and private sectors.

The number of persons in employment remained almost unchanged year on year in February, amounting to 938,412. Despite the stable overall level of employment, differences across activities and sectors remain pronounced. Divergence between the public and private sectors continues to stand out (Figure 4.1, left). In February, the number of persons in employment in the public sector was 1.8% higher year on year, while in the private sector it was 0.7% lower. The decline in private sector employment was driven primarily by manufacturing, where the number of persons in employment decreased by 1.5% year on year, or by around 3,100 persons.

Amid stagnation in the total number of persons in employment, overall expected hiring by firms remained similar to a year earlier. Expectations improved somewhat in manufacturing, while deteriorating more noticeably in services, indicating a moderation in labour demand in parts of the economy that had been an important driver of employment growth in recent years. Firms continue to rely heavily on foreign labour, which alleviates challenges related to limited domestic labour supply. Over the past year, the largest number of foreign workers were employed in health and social work activities, followed by education and manufacturing. The share of foreign nationals among persons in employment reached 15.9% in February, which is 0.3 percentage points more than a year earlier.

Unemployment remains low. In March, 45,760 persons were registered as unemployed. More detailed data indicate a continued decline in long-term unemployment, while short-term unemployment has increased slightly (Figure 4.1, right). At the end of last year, the survey unemployment rate also increased somewhat, reaching 4.2% in the fourth quarter, which is 0.6 percentage points higher than a year earlier. Despite this increase, it remains relatively low and the labour market remains tight.

Wage growth accelerated again at the beginning of the year.

Amid a marked increase in the minimum wage, wage growth picked up again at the start of the year. In January, overall year-on-year wage growth stood at 6.7%, which is 7.3 percentage points higher than in December (Figure 4.2, left). The 16% increase in the minimum wage was the key factor behind wage developments in the private sector, where year-on-year growth in January, at 7.2%, was significantly higher than at the end of last year. December data were affected by the introduction of a mandatory Christmas bonus, which influenced developments in extraordinary payments. These were lower than usual in November and December, temporarily reducing year-on-year wage growth in those months. Following a gradual moderation in wage growth that characterised most of 2025, the increase in the minimum wage has thus led to a renewed strengthening of wage pressures in the private sector. In the public sector, year-on-year wage growth stood at 5.5% in January, which is lower than the average for 2025, when wage developments were marked by increases related to the implementation of the wage reform. These increases will continue this year, with the first taking place in June and the second in December.

Labour costs already increased markedly at the end of last year, driven primarily by the introduction of a mandatory Christmas bonus for all employees and the implementation of the wage reform in the public sector (Figure 4.2, right). Such wage growth is not aligned with productivity developments, which is weakening the cost competitiveness of the Slovenian economy, particularly in a challenging international environment. Moreover, labour cost growth in Slovenia had already been high before the pronounced increase at the end of last year and has significantly exceeded developments in the euro area since the pandemic. The effects of the increase in the minimum wage at the beginning of the year and the agreed wage increases in the public sector for 2026 are not yet reflected in these indicators, suggesting a further deterioration in the cost competitiveness of the economy this year.

5Current Account

Merchandise trade contracted in the first two months of this year.

According to balance of payments data, merchandise exports declined by 1.1% year-on-year in January and February[20] (Figure 5.1, left), while, based on our estimates[21], exports fell by 2.0% in real terms. The decline was driven in particular by lower exports to Germany (–4.7%) and Austria (–8.4%) compared with the same period last year. By product group, the contraction was mainly attributable to lower exports of energy products and industrial materials, while higher exports of pharmaceutical products and road vehicles partly offset the overall decline.[22] In euro area countries, merchandise exports also decreased in the same period by 4.5%, primarily due to a fall in exports to trading partners outside the euro area.[23]

Goods imports declined by 2.4% year-on-year (Figure 5.1, left), although our estimates[24]  indicate that, in real terms, imports stagnated (–0.1%). Imports from Italy, Austria and Turkey decreased, which is mainly associated with lower imports of energy products. Other product groups also contributed to the decline, particularly industrial materials and chemical products. In euro area countries, merchandise imports also decreased, by 4.1%, but not from China. Imports from China increased by 3.1%, and in Slovenia the increase was even more pronounced, at 20.1%. In the latter, this growth was largely attributable to a 25% rise in imports of machinery and equipment and a 42.5% increase in imports of electrical machinery and equipment, year-on-year (for more on the shift in competitive pressures towards product groups that are also important for Slovenian exporters, see Box 5.1).

The coverage of merchandise imports by merchandise exports stood at 101.8%, while the merchandise trade surplus amounted to EUR 123 million, which is EUR 93 million more than in the same period last year. The improvement was mainly due to a sharper decline in nominal imports than in exports. This was supported by price developments, as import prices fell, although somewhat less than in other euro area countries, while prices of Slovenian producers on foreign markets increased significantly more than the euro area average.[25] This coincides with reports from Slovenian exporters of a less favourable competitive position in foreign markets.[26]

In the coming months, manufacturing firms in Slovenia and in key import partner countries within the EU[27] expect selling prices to increase. Slovenian firms had already raised their expectations in previous months, while in partner countries expectations increased further in March amid the escalation of the conflict in the Middle East (Figure 5.1, right). The current absence of a further increase in expectations among Slovenian firms may be linked to the less pronounced rise in energy prices in Slovenia compared with other euro area countries (see Section 1).

Geopolitical developments are also reflected in a deterioration of consumer confidence in key export partner countries.[28] At the same time, Slovenian manufacturing firms are not observing a recovery in new export orders, which does not indicate an increase in export activity in the coming months. With regard to imports, the available indicators do not yet provide a clear picture of trends in domestic demand (see Section 3).

Growth in services exports was supported by an increase in the number of overnight stays by tourists.

The services trade surplus amounted to EUR 411 million in the first two months of this year, similar to the figure recorded a year earlier, while the coverage of imports by exports stood at 130.3%. Services exports increased by 2.7% year-on-year. Among the categories, travel stood out, with broad-based export growth coinciding with a 9.6% increase in overnight stays by foreign tourists, most notably in mountain and spa municipalities. Daily data for the first 43 days since the beginning of March confirm a marked strengthening of tourism activity, with a year-on-year increase in overnight stays by foreign tourists of 29,4%.[29] Growth in services exports was also supported by increased exports of insurance services, reflecting a major long-term insurance contract signed by a large Slovenian insurance company last year, as well as by increased exports of business services. Exports of transport services remained unchanged, with weaker exports primarily in freight transport services, in line with subdued merchandise trade. Exports of construction services contracted by 14.1% and, since the beginning of 2024, have made a mostly negative contribution to overall growth in services exports.

Services imports increased by 4.4% year-on-year. The largest contributions to growth came from higher imports of private travel services, which increased by 11.0%, mainly to neighbouring countries, and from imports of professional and business consulting services, which increased by 28.2%.[30] By contrast, imports of transport services declined, which is also associated with subdued merchandise trade.

The surplus on the primary income account amounted to EUR 23 million, with total receipts and expenditures remaining at a similar level to last year. The bulk of expenditures consisted of reinvested earnings of foreign-owned companies, which increased by 10.2% year-on-year. On the receipts side, income was more evenly distributed between compensation of employees and various types of capital income. Within this, reinvested earnings from equity capital rose by 46.9%, or EUR 31 million. The deficit on the secondary income account narrowed slightly to EUR 221 million. Receipts increased year-on-year, mainly due to net premiums related to the aforementioned insurance contract. Expenditures also increased, owing to higher regular contributions to the EU budget and larger compensation payments related to the export of insurance services.

The current account surplus is lower than its level before the energy crisis, primarily due to a weaker merchandise trade balance.

The current account surplus reached EUR 2.6 billion, or approximately 3.7% of GDP,[31] in the twelve months to February, which is EUR 92 million more than in 2025. The increase was also supported by an improvement in the merchandise trade balance, which moved from a slight deficit to an almost balanced position. Nevertheless, the current account surplus remains below its level prior to the energy crisis, despite the growing surplus in services trade (Figure 5.2). The main constraining factor continues to be the merchandise trade balance, which has not fully recovered since the energy crisis at the onset of the war in Ukraine and slipped back into deficit in the final months of last year. This was further exacerbated after the pandemic by faster growth in real merchandise imports than exports. The gap reached its peak in the fourth quarter of 2025, when the largest real merchandise trade deficit since the global financial crisis was recorded.

6Inflation

Headline inflation slowed in March despite pronounced increases in global energy prices following the outbreak of war in the Middle East.

The year-on-year growth in consumer prices, measured by the HICP, slowed to 2.4% in Slovenia in March, down from 2.8% in February. The moderation is primarily attributable to lower year-on-year growth in food and energy prices (Figure 6.1, left). As regards energy prices, their annual growth rate slowed by 1.7 percentage points to 1.1% in March, despite pronounced rises in global energy markets (for further details, see Chapter 1). This was mainly the result of developments in electricity prices, and partly due to reduced excise duties on liquid fuels (Figure 6.1, right, and Box 6.1.1).

Food inflation slowed to 3.3% in March (4.3% in February), primarily due to base effects, as the level of food prices has remained broadly unchanged since August last year. Regarding the sub-components, food inflation continues to be driven mainly by unprocessed food prices, which stood at 6.8% in March, while the growth in processed food prices moderated considerably to 2.0%. The slowdown was accompanied by easing price pressures along the food production and supply chain. Farm-gate prices in the euro area were 4.5% down year-on-year in March, despite a pronounced month-on-month increase, while the year-on-year growth of producer prices for food products decelerated to 3.2% in February, which is 1.8 percentage points lower than in January (Figure 6.2, left). However, price pressures could strengthen following higher global prices of energy and fertilisers due to the war in the Middle East. These developments pose a risk of higher food inflation, as already suggested by the pronounced month-on-month rise in farm-gate prices in March, indicating the first signs of higher input costs entering the food production and supply chain.

Core inflation remained unchanged compared with February and continues to be driven primarily by developments in services prices.

Core inflation, i.e. inflation measured excluding energy and food prices, remained at 2.3% in March, unchanged from February. Its dynamics continue to be driven mainly by services prices. Year-on-year growth in services prices stood at 4.1%, 0.2 percentage points higher than in February, mainly reflecting the persistence of domestic price pressures, in particular the pass-through of higher labour costs into final services prices. The strengthening of services inflation in March was attributable to a limited set of components, primarily prices of motor vehicle insurance, package holidays, and accommodation.

Year-on-year growth in other goods prices remained low in March, standing at 0.1% (0.3% in February). The slight growth could be attributable to domestic price factors, reflecting diverging price dynamics along the production chains. In particular, producer prices of intermediate and non-food consumer goods for domestic market were 2.3% and 4.0% higher year-on-year in February, respectively. By contrast, the growth rates for corresponding import prices stood at 0.6% and –5.8%, partly reflecting the impact of strong growth in labour costs.

Although higher wholesale energy prices had only a limited direct impact on inflation in March, inflationary pressures could strengthen in the coming months as higher input costs pass through the production and supply chains and raise final goods and services prices. In addition to energy prices, higher fertiliser prices – which primarily affect food prices and, indirectly, also service prices – will also contribute to upward pressures. Such developments are already affecting consumers sentiment. Household expectations regarding future price developments rose significantly in March and reached their highest level since 2022 (Figure 6.2, right). In addition to inflation expectations, the impact of the war in the Middle East on inflation will also depend, among other factors, on the duration and extent of energy supply disruptions, developments in wholesale energy markets, second-round effects, and the response of fiscal policy.

7Fiscal Position

The general government deficit increased last year amid robust growth in expenditure – particularly on social benefits, compensation of employees, and gross fixed capital formation – while the debt-to-GDP ratio continued to decline as GDP expanded.

In 2025, the general government deficit amounted to EUR 1.7 billion, or 2.5% of GDP, which is 1.6 percentage points of GDP higher than in the previous year. Interest expenditure remained at 1.3% of GDP, while the primary balance turned negative. The most significant deterioration in the balance occurred in the fourth quarter, when expenditure growth of 16.8% outpaced revenue growth by 8.6 percentage points.

General government revenue increased by EUR 2.5 billion, or 8.1%. The main driver of growth was net social security contributions, reflecting favourable labour market conditions for public finances and the introduction of a new long-term care contribution in July 2025 (Figure 7.1, left). Direct taxes were up 5.2% year-on-year, with slightly stronger growth in personal income tax alongside a partial adjustment of tax brackets and allowances in line with wage growth, while corporate income tax growth was lower. Indirect taxes (on production and imports) recorded the smallest increase, at 3.5%, which is comparable to the growth in private consumption. Excise duties declined, while value added tax revenue increased. Capital revenue strengthened as the implementation of the Recovery and Resilience Plan accelerated.

General government expenditure increased more strongly than revenue, rising by EUR 3.6 billion, or 11.6%. The main contributors to this growth were social benefits, compensation of employees, and gross fixed capital formation. Pensions, which constitute the largest share of social benefits, were adjusted upwards by 4.5% last year; at the same time, the number of pensioners increased by 1.6%[41], and at the end of the year, they also received a winter supplement. The wage reform led to higher wages in the general government sector, while additional increases in compensation of employees resulted from promotions and the payment of a winter bonus (Christmas bonus) amounting to half the minimum wage. The government supported economic activity through investment, which recorded the most pronounced year-on-year increase in the fourth quarter. All these factors significantly increased the general government deficit, particularly in the final quarter of last year (Figure 7.1, right).

General government debt increased nominally by EUR 1.6 billion in 2025, reaching EUR 46.3 billion. As a share of GDP, it declined to 65.7%, which is lower than before the pandemic, when it stood at 66.0% of GDP in 2019. The main factor contributing to the reduction in the debt-to-GDP ratio was the growth of nominal GDP; however, its impact was more pronounced during the period of high inflation than in the past two years (Figure 7.2). The implicit interest rate, estimated based on interest expenditure in the previous year and the average stock of debt over the past two years, remained unchanged at 2.0%.

The deficit of the consolidated general government balance increased in the first two months of this year, amid continued strong growth in expenditure.

The deficit of the consolidated general government balance amounted to EUR 132 million in the first two months of this year, compared with EUR 21 million in the same period last year. Revenue increased by 8.7%, primarily due to higher tax revenues and receipts from the EU budget. Growth in social security contributions remained strong, supported by the introduction of the long-term care contribution in July last year; in addition, the further increase in real disposable household income contributed to stronger growth in value added tax. The high 11.2% increase in expenditure was mainly driven by compensation of employees and transfers to individuals and households. The balance of flows with the EU budget improved somewhat year-on-year, mainly due to higher inflows from the Recovery and Resilience Facility.

In the first two months, the state budget contributed EUR 108 million to the deficit of the consolidated general government balance; in March, the deficit increased further, reaching EUR 700 million in the first quarter, which is approximately EUR 250 million higher year-on-year. For the whole year, the state budget deficit is planned at EUR 2.1 billion (compared with EUR 1.7 billion last year).

By the end of March, borrowing had already covered more than 60% of the planned funding requirements set out in the 2026 Budget Financing Programme. The largest share of borrowing was carried out through the issuance of a 10-year domestic currency bond in the amount of EUR 2.5 billion, with a coupon rate of 3.275%. For the third consecutive year, retail bonds were issued, totalling EUR 225 million, and for the first time, panda bonds denominated in renminbi were issued on the Chinese market in the amount of EUR 503 million. In addition, several issues of treasury bills with maturities of up to one year were carried out.

Fiscal risks remain elevated. Due to the war in the Middle East and high energy prices, the Government of the Republic of Slovenia reduced excise duties on petroleum products and, temporarily for 42 days until 4 May 2026, suspended the payment of the environmental levy for air pollution caused by CO2 emissions from motor petrol, diesel fuel and heating oil; further measures are also possible.[42] These measures should be temporary and targeted, as this limits fiscal costs and mitigates the impact of higher prices on more vulnerable groups of the population. Additional risks stem from a possible slowdown in economic activity and a deterioration in labour market conditions, while uncertainties are also related to the formation of a new government following the elections, particularly with regard to the need to adopt fiscally sustainable measures. Risks associated with population ageing, environmental requirements and defence expenditure also remain present.

8Statistical Appendix

9List of Abbreviations