Summary

The Slovenian economy outperformed the euro area overall last year, while the initial data points to a continuation of solid trends in the early part of this year, despite the uncertain situation. Inflation remains close to its price stability target rate.

The survey indicators point to a continuation of weak economic growth in the euro area in the early part of this year. Despite slowing, activity in the service sector remained in the zone of expansion in February, while manufacturing continued to contract, albeit at its slowest pace in last nine months. Accordingly the economic sentiment rose slightly. Headline inflation in the euro area rose slightly to 2.5% in January, while core inflation remained unchanged at 2.7%. This year’s economic growth in the euro area is forecast at 1.0% by the IMF’s January projections, and at 1.1% by the ECB’s December projections.

Most of the major global central banks other than the Fed are moving ahead with the easing of monetary policy. In January the Eurosystem made its fifth cut since the cycle of monetary policy relaxation began in June of last year, reducing the interest rate on the deposit facility by 0.25 percentage points to 2.75%. The markets’ expectations with regard to the pace and size of the cuts in the ECB’s key interest rates have not changed significantly since the beginning of January, while the expectations with regard to the Fed have strengthened slightly. According to current interest rate swap rates, investors are expecting total further cuts in key interest rates of 0.75 percentage points at the ECB and 0.50 percentage points at the Fed this year.

Since the beginning of January, the financial markets have mainly been conditioned by the uncertainty surrounding the future economic policy and tariff policy of the new administration in the US. Yields on US government bonds fell, while the main US and European share indices reached record highs despite the uncertainty. Likewise, the price of gold also reached a record high.

Last year the Slovenian economy outperformed the euro area overall, and its performance looks to have remained solid in the early part of this year. The conditions for private consumption improved last year, and domestic final consumption continues to be strengthened by the government sector. Investment saw a sharp downturn, given the great uncertainty, the high energy costs, and the decline in the government’s role in investment. Merchandise exports and value-added in manufacturing recorded positive year-on-year growth in the second half of the year, and the situation in construction also improved at the end of the year. Quarterly GDP growth reached 0.6% in the final quarter, taking the year-on-year rate to 1.5%. The available data for the first quarter of this year shows solid growth on the domestic market, but a continuation of the difficult situation for exporters, with the nowcasts pointing to quarterly GDP growth of 0.7%.

The situation on the labour market is slightly weaker compared with previous months. The number of persons in employment fell significantly in December as a result of people retiring and the expiration of fixed-term contracts, but remains relatively high. The contraction in employment was particularly evident in manufacturing, while the situation in services remains favourable. The number of job vacancies continues to decline and is approaching pre-pandemic levels. As expected, the number of registered unemployed increased in January but remains low at 50,148. Wage growth slowed in December, with public sector wages—after a prolonged period—rising faster than in the private sector. These trends are expected to continue, as a public sector wage reform took effect in January. With inflation easing, real wages continue to strengthen, boosting household purchasing power.

The favourable developments in international trade seen in the previous quarter continued in the final part of last year, albeit at a slightly slower dynamic. Services trade strengthened in particular in the final quarter according to the balance of payments figures, with imports and exports each seeing growth of around 8%. Growth in merchandise trade slowed slightly, but remained positive. The terms of trade improved slightly further, albeit less than in the third quarter. The 12-month current account surplus remained high at the end of the year at EUR 3.3 billion, largely on account of the services trade surplus.

Headline inflation slowed in February, after rising slightly at the end of last year following its gradual decline over the last two years. As measured by the HICP it stood at 1.9%, down 0.4 percentage points on January. The slowdown was primarily attributable to lower year-on-year growth in energy prices, partly linked to lower electricity prices following the implementation of the law to cap high network charges. Year-on-year food inflation strengthened by contrast in February, as did growth in prices of other goods, and services inflation. Hence, the increase in core inflation to 2.2% was broad-based. Despite gradually slowing, services inflation continues to be driven by wage developments, and thus remains the most important driver of headline inflation.

The surplus of the consolidated general government budgetary accounts in January was down almost a half in year-on-year terms. Tax revenues continued to record high growth, while revenues from the EU budget were lower. January’s growth in expenditures was mainly driven by subsidies and investment expenditure. Expenditure on wages was up 7.3% in year-on-year terms, although it has not yet reflected the first wage rises under the new wage system. The public finance developments remain exposed to numerous risks, including the international situation, the progress in the post-flood reconstruction, and the reforms currently under preparation.

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In this publication we analyse the impact of wage developments on the competitive position of the economy. Previous years saw above-average wage growth, driven in particular by a tight labour market and adjustments for past inflation. Our finding is that wage growth, in a context of low productivity, played a significant role in the rise in unit labour costs, but its impact on external competitiveness remained limited, as the deterioration in our main competitors in export markets was even more pronounced. This year, wage developments will also be influenced by the realignment of wage levels in the public and private sectors. At the same time, we assess that the realised and expected higher wage growth in the public sector, following the implementation of the wage reform, does not for now pose a significant risk of spillover effects into the private sector. We nevertheless emphasise the necessity of productivity-enhancing measures to support low inflation, to ensure external competitiveness and to maintain the sustainability of the public finances in the context of the new fiscal rules.

1International Environment

Global economic growth will be moderate this year, with the risks mostly on the downside.

Of the major global economies, it was Japan that saw the highest GDP growth in the final quarter of last year, with a rate of 0.7%. The growth was driven by private investment, by international trade, and also by household consumption amid rising wages. Economic activity in the US also strengthened, by 0.6% in quarterly terms, the lowest rate of the last three quarters. US GDP growth continues to be driven mainly by private consumption. The UK and the euro area saw comparatively modest quarterly GDP growth of 0.1% each. By contrast, China saw its highest GDP growth of the last two years, at 1.6%. It was supported by the fiscal and liquidity measures in place since last September.

The global PMIs in the early part of this year point to a recovery in manufacturing and a slowdown in growth in services (see Figure 1.1, left). The global manufacturing PMI avoided the zone of contraction in January at 50.1 points, while the services PMI declined slightly to 52.2 points. The global composite PMI remains in the zone of moderate expansion at 51.8 points. The manufacturing PMIs remain in the zone of contraction in the major advanced economies, with the exception of the US. The composite PMI is thus being maintained in the zone of moderate economic growth everywhere by services. The PMIs in China are pointing to moderate growth, and those in India are continuing to strengthen sharply, while the PMIs in Brazil point to a moderate contraction, largely because of difficulties in the service sector.

According to institutional projections released in January by the IMF, after hitting 3.2% last year, global economic growth is forecast to continue and to rise slightly this year and next year. It is forecast at 3.3% for this year, up 0.1 percentage points on the previous projections, but still below its long-term average of 3.7%[1] (see Figure 1.1, right). The major advanced economies are forecast to have approached their long-term average growth rates by 2026, with growth strengthening in the euro area, the UK and Japan, and slowing slightly in the US. GDP growth in China and Russia is forecast to be below the long-term averages, while India and Brazil are forecast to see stable growth at close to the long-term average. Given the increased uncertainties, the medium-term risks to growth lie on the downside in the majority of economies, but on the upside in the US, where protectionist measures could also give rise to inflationary pressures.

Economic growth in the euro area was modest in the final quarter of last year, and the PMIs point to growth remaining modest in the early part of this year.

The euro area economy expanded by 0.1% in the final quarter of last year, compared with 0.4% in the previous quarter (see Figure 1.2, left). According to the monthly indicators of activity, the quarterly growth was based on services and construction, while industrial production contracted. Among the major euro area economies, the largest quarterly increases in GDP were recorded in Spain and the Netherlands, at 0.8% and 0.4% respectively, while GDP remained unchanged in Italy, and contracted by 0.2% in Germany and 0.1% in France.

In line with the low economic growth, there was also a slowdown in quarterly growth in employment, which stood at 0.1% in the final quarter, down from 0.2% in the third quarter. The main factor in the weak employment growth in the euro area was the adverse situation in manufacturing. After a long period of decline, the unemployment rate rose slightly in December to 6.3%, but remains very low from a long-term perspective.

The survey data in the first quarter of this year is slightly more encouraging than in the final quarter of last year (see Figure 1.2, left), largely on account of the manufacturing PMI, which at 46.6 points and 47.3 points during the first two months of the year was showing its smallest contractions of the last nine months. Despite slowing, services activity remained in the zone of expansion, with the PMI standing at 50.7 points in February. The composite PMI stood at 50.2 points at the beginning of the year, and continued to point to moderate growth in economic activity in the euro area. Accordingly the European Commission’s economic sentiment indicator was also up slightly. It rose to 95.3 percentage points in January and 96.3 percentage points in February, up from 93.8 percentage points in December, largely as a result of the improved mood in industry, but also to a slight extent on account of consumers (see Figure 1.2, right). The mood in industry nevertheless remains down on its long-term average, while the mood in construction is furthest above its long-term average. Meanwhile the mood in other sectors is broadly similar to the long-term average. The ZEW economic sentiment index also rose in February, to 24.2 points (up from 18 points in January), although this was a slight surprise on the downside with regard to the Consensus expectations. The index nevertheless indicates that slightly more euro area investors and analysts are feeling optimistic with regard to the medium-term economic situation.[2]

According to the IMF’s latest projections from January, euro area GDP growth is forecast at 1.0% this year (compared with the forecast of 1.1% from December by the Eurosystem experts), down 0.2 percentage points on the previous projections. Growth is forecast to strengthen slightly relative to 2024, but less than previously forecast, mainly as a result of uncertainty related to geopolitical tensions, and the ongoing weakness of manufacturing. The IMF is forecasting economic growth of 1.4% for the euro area in 2026, the same as the Eurosystem forecast from December.

In light of the challenges of low productivity growth and weakened competitiveness at EU level, the European Commission has drawn up a competitiveness compass.

In the 2025 Annual Single Market and Competitiveness Report the European Commission highlights that produtivity in the EU is persistently lagging behind the US.[3] EU labour productivity (per capita GDP in PPP per hour worked) stands at 77.8% of the US level in 2023. Low productivity growth is one of the challenges that the EU faces in the area of competitiveness. Competitiveness has been identified as one of the main areas where action by the EU is needed. The external competitiveness of Slovenia and other EU Member States is examined below in Box 5.1.

The European Commission unveiled its competitiveness compass in February, which sets out the approach and a selection of key measures to increase the EU’s competitiveness.[4] The compass highlights three transformational imperatives to boost competitiveness (closing the innovation gap, a joint roadmap for decarbonisation and competitiveness, reducing excessive dependencies and increasing security), and five horizontal enablers (simplification with the aim of reducing regulatory and administrative burdens, lowering barriers to the Single Market, financing competitiveness, promoting skills and creating quality jobs, better coordinating policies at EU and national level).

The competitiveness compass provides the framework for the European Commission’s work in the area of competitiveness over the next five years. Some of the measures from the compass will be unveiled quickly. The European Commission has thus already presented the clean industrial deal (the joint roadmap for decarbonisation and competitiveness), a core component of which is the affordable energy action plan, and certain measures to improve the regulatory environment and reduce administrative barriers for firms.

Headline inflation in the euro area strengthened in January for the fourth consecutive month, again driven largely by higher energy inflation.

Headline inflation as measured by the HICP stood at 2.5% in January, up 0.1 percentage points on December of last year. This was the fourth consecutive monthly rise, leaving the rate 0.8 percentage points higher than in September, when it had reached its lowest level since April 2021. With core inflation unchanged and food inflation slowing, the rise in headline inflation was solely attributable to the increase in energy inflation. The annual growth rate of energy prices stood at 1.8% in January, up from 0.1% in December. The rise was primarily attributable to month-on-month price increases, in particular for motor fuels and electricity, reflecting wholesale markets trends. By contrast, year-on-year food inflation stood at 2.3% in January, having slowed by 0.3 percentage points from December despite monthly price rises. The change was due to lower annual growth rates for both unprocessed and processed food, as respective rates of 1.4% and 2.6% were down 0.2 percentage points and 0.3 percentage points on December (see Figure 1.3, left).

Inflation excluding energy and food stood at 2.7% in January, unchanged from December. It continues to be primarily driven by services inflation, which stood at 3.9% in January. Services inflation has been fluctuating around 4% since November 2023, driven largely by domestic factors reflecting pass-through of higher labour costs to final prices. By contrast, year-on-year growth in prices of other goods remained stable at 0.5% in January, unchanged from December and in line with its long-term pre-pandemic average, indicating that the impact of past shocks has now waned almost entirely.[5]

Amid the declining trend of headline inflation since the end of 2022, the gap between inflation rates of euro area members has also been narrowing. While the difference between the highest (Estonia with 25.2%) and lowest (France with 6.6%) inflation rates stood at 18.6 percentage points in August 2022, it had narrowed to 3.4 percentage points by January of this year, slightly above its pre-pandemic level. Despite easing conditions in wholesale markets, significant differences in energy inflation remain: the gap averaged 24 percentage points over the final quarter of last year. This partly reflects the varying approaches of countries in mitigating the impact of high energy prices on households. Food inflation has also contributed to the diverse headline inflation rates in recent years. Having approached its pre-pandemic level last year, the food inflation gap has widened again in recent months. By contrast, core inflation divergence was less pronounced in previous years, and by the final quarter of last year, the average gap had returned to its pre-pandemic level of 3.9 percentage points (see Figure 1.3, right).

2Monetary Policy and Financial Markets

The Eurosystem cut the interest rate on the deposit facility by 0.25 percentage points in January to 2.75%, while the Fed left its key interest rate unchanged.

In January, the Eurosystem lowered all three of its key interest rates by 0.25 percentage points—the fifth reduction since the monetary policy easing cycle began in June of last year. This reduced the interest rates on the deposit facility to 2.75%, on main refinancing operations to 2.90% and on the marginal lending facility to 3.15%. The decision to cut rates was based on an updated assessment of the inflation outlook, developments in core inflation, and the strength of monetary policy transmission. The ongoing process of reducing inflation remains in line with expectations, and most measures suggest that inflation will sustainably stabilize around the Governing Council’s 2% target rate.

Amid heightened inflation risks, the Federal Reserve left its key interest rate unchanged in the corridor of 4.25% to 4.50% at its January meeting. At the press conference, Fed Chair Jerome Powell stated that any decision to lower interest rates would require additional data and details concerning the economic policy of the new US administration. By contrast, cuts of 0.25 percentage points in their key interest rates were made in January by the central banks in the UK (to 4.50%), Sweden (to 2.25%) and Canada (to 3.00%), while the Japanese central bank raised its key interest rate by 0.25 percentage points to 0.50%, in light of the upward trend of prices in Japan.

Expectations for the pace and scale of interest rate cuts at the ECB have remained largely unchanged since early January. By contrast, expectations for the Federal Reserve have increased slightly, driven by weaker-than-anticipated U.S. GDP growth in the final quarter of last year and a contraction in services in January. According to current overnight index swap (OIS) rates, markets are pricing in three additional 0.25 percentage point cuts to the ECB’s key interest rates this year, bringing the deposit facility rate down to 2.00% (see Figure 2.1, left). Meanwhile, market forecasts indicate two rate cuts by the Fed in 2025, which would place its key interest rate in a corridor between 3.75% and 4.00%.

Yields on US government bonds have fallen since January, while the main US and European share indices have risen to record levels, as has the price of gold.

Under the influence of heightened expectations regarding the pace and magnitude of interest rate cuts at the Fed, US government bond yields have declined since early January. Weak economic indicators, particularly in services, were a major factor. Yields also dropped as investors sought safer assets amid increased concerns that US tariff policy could hamper economic growth. Short-term yields on US government bonds have fallen by 0.21 percentage points since the beginning of January, while long-term yields have decreased by 0.33 percentage points. Similarly, yields on short-term German government bonds have fallen by 0.09 percentage points over the same period, while yields on long-term bonds are broadly unchanged. Market yields on euro area bonds with higher credit risk mostly decreased during this period, supported by generally positive corporate earnings reports.

The main US and European equity indices reached record highs in the second half of February. Europe’s leading equity benchmark (STOXX Europe 600) has gained 9.1% since the beginning of January, while the leading US index (S&P 500) is 4.6% below its recent high in response to weak economic data. Meanwhile, the Magnificent Seven index—which tracks seven largest US technology firms—has declined by 11.7% from its December 2024 record high (see Figure 2.1, right). In Hong Kong, the Hang Seng technology-focused share index has risen by 16.2% since early January, driven by investor optimism surrounding the technological advances of Chinese firms. Encouraging earnings reports from Chinese tech companies and the launch of the DeepSeek AI model also supported these gains.

The US dollar has declined against most major global currencies since early January, losing 0.4% against the euro and 1.8% against a broader currency basket. Together with the uncertainty surrounding future global economic growth, the weaker US dollar drove a fall in the price of Brent crude, which is 3.3% lower than at the beginning of January. The price of gold rose by 7.6% over the same period, as investors moved into safe havens, though it currently remains below its record high reached in the second half of February (USD 2,956 per ounce).

3Domestic Economic Activity

At the end of last year, the economic situation in Slovenia was better than that in the euro area overall; the large contribution to GDP growth by net exports was a highlight, but investment developments remained weak.

Economic growth was low last year, but the situation improved over the course of the year, as is evident from the strengthening quarterly dynamics. According to the SURS’s initial estimates, GDP rose by 1.6% last year, 0.5 percentage points less than in 2023, but still a better performance than the euro area average. From stagnation in the first quarter, quarterly growth in the domestic economy had strengthened to 0.6% by the end of the year, leaving GDP up 1.5% in year-on-year terms in the final quarter. Both rates outperformed the euro area averages at the end of the year (see Figure 3.1, left).

The expenditure breakdown of GDP reveals the significant role played by the government in the maintenance of economic growth last year, the renewed growth in household consumption, and the sharp downturn in the investment cycle (see Figure 3.1, right). After peaking in the second quarter, year-on-year growth in final government consumption slowed but still stood at 5.7% in the final quarter, and its contribution to GDP growth amounted to 1.1 percentage points. A large part of last year’s growth in government consumption was attributable to the reclassification of supplemental health insurance as a compulsory health contribution, while increased employment in the government sector and the increase in expenditure on the post-flood reconstruction were also factors.

The fall in inflation and the rise in real growth in the net wage bill drove renewed growth in private consumption last year. The year-on-year rate stood at 1.2% in the final quarter, up 0.4 percentage points on a year earlier. In a situation of major international uncertainty, high energy costs and a reduced role for the government, last year was very challenging for firms in terms of investment. There was a sharp downturn in the cycle, and investment in the final quarter was down 5.2% in year-on-year terms. The decline was evident in all types of investment, but was particularly unfavourable in investment in machinery and equipment, where it reached 7.1%.

There was an upturn in year-on-year developments in exports, which strengthened in the second half of last year. Exports of merchandise and services in the final quarter were up 3.9% in year-on-year terms, although their nominal structure according to the SITC is not indicative of a large scale improvement in the situation in the merchandise segment.[6] A large part of the growth was driven by the excellent performance of the pharmaceutical industry, which succeeded in increasing its nominal exports by 37.7% in year-on-year terms, while exports of electricity were also high. Growth in services exports was more broadly based according to the balance of payments figures, with increases in the vast majority of categories. Because growth in aggregate imports was curtailed by weak domestic investment and the run-down of inventories, the contribution made to GDP growth by net trade was positive at the end of the year. It amounted to 1.3 percentage points (see Figure 3.1, right).

The favourable growth in aggregate value-added in manufacturing hides major differences between sectors. An upturn was evident in construction by the end of the year, although residential construction remained in crisis.

Despite the difficulties in the European economy, by the end of the year domestic industrial firms were once again seeing increases in value-added, by 0.8% in quarterly terms and 3.4% in year-on-year terms. The growth was even higher in the manufacturing sector, where the year-on-year rate of 4.2% was up 3.3 percentage points on a year earlier. However, the relatively high aggregate growth – as in merchandise exports – hides major differences between sectors. Only half of the sectors recorded a year-on-year increase in output in the final quarter of last year, with the year-on-year changes ranging from –37.0% to 31.4%. The technological breakdown illustrates the pharmaceutical industry’s prevailing contribution to aggregate growth in output.

Value-added in construction recovered in the final quarter of last year. After one year of quarterly declines, the quarterly rate of growth was high at 5.9%, while the amount of construction put in place revealed the strengthening activity in all segments of construction other than residential construction. A reversal in the year-on-year position was also achieved: growth in value-added had turned positive by the end of the year, following two quarters of negativity. It stood at 1.3%. Meanwhile the housing market remains in crisis, with no signs of strengthening supply. Housing investment in the final quarter of last year was down 13.7% in year-on-year terms, while the number of new building permits and the corresponding housing floorspace continued to show a similar year-on-year decline in January.[7]

The situation in private-sector services remained favourable amid solid domestic private consumption and increased foreign demand and the financial sector continued to perform well. Quarterly growth in their value-added held at 0.4% at the end of the year, while the year-on-year rate reached 1.8%. The year-on-year comparisons were positive in all categories of services, with financial and insurance activities recording the highest growth in value-added (5.3%). The sole exception was the small decline in value-added in real estate activities, which could be related to the low number of transactions in the housing market. Economic growth was also strengthened by public services, where year-on-year growth in value-added stood at 1.7% in the final quarter.

The solid economic climate in the early part of this year is being driven by rising demand on the domestic market, while the situation in the international environment remains unfavourable.

Confidence rose slightly in all sectors in February (see Figure 3.2, left). Retail and other private-sector services remained to the fore, with positive assessments of demand. These were in line with January’s year-on-year increase in the real value of card payments and ATM withdrawals (see Figure 3.2, right), invoices registered with tax authorities,[8] and retail turnover. An upturn was evident in construction, where firms saw a sharp rise in their assessments of activity and order books in February. The manufacturing confidence indicator in February was up slightly on January, but the situation remains difficult; firms are not predicting an increase in the relatively low level of capacity utilisation in the first quarter of this year, and continue to cite insufficient foreign demand and high economic uncertainty as limiting factors.[9] In contrast to business, consumer confidence declined again, with consumers becoming more pessimistic in their assessments of their own financial situation and the domestic economy over the next 12 months.

4Labour Market

The situation on the labour market is slightly weaker compared with previous months. Employment fell in 2024, and the number of vacancies is also continuing to fall.

The number of persons in employment fell by 10,005 to 938,439 in December (see Figure 4.1, left). This decline was largely driven by a high number of retirements at the end of the year, likely due to more favourable retirement conditions in 2024 compared to 2025. Another key factor was the expiry of fixed-term contracts, particularly among foreign workers (see Figure 4.1, right). As a result, employment trends have aligned more closely with national accounts data, which show employment declining in all quarters of 2024, albeit from a high level. The contraction in employment was mainly due to deteriorating conditions in manufacturing and construction. Survey indicators for the first two months of 2025 suggest a slight improvement in the labour market in the months ahead, with negative expectations largely confined to manufacturing.

The number of vacancies continued to fall in the final quarter according to the seasonally adjusted data, with industry and retail seeing the most pronounced declines (see Figure 4.2, left). Despite the decline in demand for labour, firms are still facing labour shortages. This is particularly acute in services, where the share of firms citing a shortage of labour remains close to its record level.

The number of registered unemployed rose in January, in line with expectations, as a result of temporary employment positions coming to an end. Registered unemployment stood at 50,148 at the end of the month, up 6.6% on the previous month but down 2.8% on January of last year. After rising to 4.4% in the third quarter of last year, by the end of the year the surveyed unemployment rate had fallen again, to 3.5%.[10] The persistence of low registered unemployment despite the increasingly unfavourable situation on the labour market is an indication that firms are mainly reducing their workforces via retirement, which is not reflected in the unemployment statistics.

Growth in the average gross wage slowed significantly at the end of last year.

The year-on-year growth of the average gross wage stood at 3.9% in December, significantly below the annual average of 6.2%. December wage growth is strongly influenced by deferred and extraordinary payments, and the lower growth was mainly due to a smaller volume of such payments compared to the more favourable economic conditions in 2023. For the first time in a prolonged period, gross wage growth in the public sector outpaced that in the private sector—reaching 4.8% in the public sector and 3.4% in the private sector (see Figure 4.2, right). With lower nominal wage growth and slightly higher inflation at the end of the year, real wage growth slowed but remained positive at 1.9%.

5Current Account

The favourable developments in services trade seen in the previous quarter continued in the final quarter of last year, while growth in merchandise trade slowed slightly but remained positive.

According to the balance of payments figures, after performing poorly in the first half of the year with nominal declines of 1.6% in exports and 0.3% growth in imports, firms recorded export growth of 7.0% and import growth of 4.2% in the second half of the year, which promises a good outlook for this year.[17] Manufacturing firms’ expectations with regard to foreign demand over the next three months declined slightly, but remained better than in the early part of last year.

After very good performance in the third quarter of last year, when they recorded growth of 10.1%, in part because of a low base effect from the previous year, nominal exports were up 4.0% in year-on-year terms in the final quarter. This was largely attributable to the 7.9% growth in services exports, driven primarily by increased exports of miscellaneous business services[18] and telecommunications services[19] (see Figure 5.1, left). There was a pronounced decline in exports of construction services, the largest since the final quarter of 2013. In the geographical breakdown the largest increases in exports in terms of value were recorded by Switzerland and Austria, primarily exports of miscellaneous business services in both cases. Services exports were also strong in December, recording year-on-year growth of 9.8%.

After growing strongly in the third quarter of last year, merchandise exports slowed slightly in the final quarter, recording growth of 2.8%, where the weak growth in export activity of 0.4% in December was also a factor in the slightly weaker performance (see Figure 5.1, right). Growth in exports of chemical products[20] remains favourable: in year-on-year terms they were up 12.4% in December, and 10.9% in the final quarter overall. Growth in merchandise exports was supported by almost all other product categories, albeit with minor contributions, with the exception of machinery and transport equipment, and miscellaneous fabricated products. The largest year-on-year increases in value terms in December and in the final quarter overall were recorded by exports to Switzerland and Russia, [21] while the largest decline was in exports to Austria.

Given the numerous challenges facing export-oriented firms, it is evident that in recent years they have at least slightly refocused on other export markets, which together with their cost competitiveness is examined in Box 5.1.

Aggregate nominal imports in the final quarter of last year were up 1.8% in year-on-year terms, with services again prominent, recording growth of 7.4% (see Figure 5.1, left). The strengthening of services imports was particularly notable in December, when they recorded their highest growth since October 2023 at 11.6%. The largest factor in the growth in the final quarter was transport services,[22] while miscellaneous business services were the largest factor in December, with the highest demand coming for business and management consulting. The largest nominal increases in services imports in the final quarter were recorded by the Netherlands (miscellaneous business services) and Luxembourg (transport services).

Year-on-year growth in merchandise imports slowed to 0.6% in the final quarter, in part as a result of weak domestic investment. The largest factors were the negative contributions by imports of machinery and equipment[23] and of energy.[24] In the geographical breakdown the largest decline was in imports from Italy (energy), while there were increases in imports of products from Germany (machinery and transport equipment) and China (chemical products).

The 12-month current account surplus reached its highest figure since May 2021 at the end of last year, in which the largest factor was still the services trade surplus.

The 12-month current account surplus amounted to around EUR 3.3 billion in the final quarter of last year, its highest level since May 2021. The largest factor was the services trade surplus of EUR 3.6 billion. Merchandise trade recorded a surplus of almost EUR 700 million, the largest 12-month surplus since the end of 2021. The income balance is continuing to reduce the current account surplus: it recorded a deficit of EUR 1 billion in December, still 12.3% less than a year earlier. The deficit in primary income was smaller than at the end of 2023, largely as a result of higher net capital income (in particular from non-financial corporations’ equity), while the smaller net labour income increased. The deficit in secondary income was mainly reduced by various current transfers.

The terms of trade improved again in the final quarter, albeit less markedly than in the third quarter (see Figure 5.2). The improvement was attributable to favourable price developments in services trade and merchandise trade alike. Export prices of services rose by more in year-on-year terms (3.4%) than import prices (2.8%). Meanwhile import prices of merchandise fell by more in year-on-year terms (1.2%) than export prices (0.8%). The terms of trade in the second half of last year improved by 1.2% in year-on-year terms, largely as a result of slightly more favourable effects in merchandise trade.

6Inflation

February’s slowdown in inflation was mainly attributable to developments in energy prices. Core inflation remains above 2%, driven by wage growth, which is however slowing. The slight uptick in inflation after October was attributable to volatility and temporary effects in energy prices.

Year-on-year consumer price inflation as measured by the HICP fell to 1.9% in February, down from 2.3% in January (see Figure 6.1, left). The slowdown was mainly attributable to developments in energy prices. While they rose by 2.9% year-on-year in January, they declined by 1.7% in February. This change, which was attributable to both base effects and monthly price falls, reduced headline inflation by 0.5 percentage points. Indeed, the year-on-year growth in energy subcomponents has been highly volatile in recent months. More precisely, after energy prices had fallen by 13.1% year-on-year in October, they rebounded over the following months, driven mainly by motor fuels and electricity prices (see Figure 6.1, right). In February, energy inflation slowed as electricity prices declined, following an emergency law mitigating the impact of high network charges for households.[33] The law reduced tariff rates for the first time block in January and February. Since the law took effect in February, it only had an impact on inflation in that month.

Food inflation strengthened to 2.8% in February (up from 2.5% in January), its highest rate since last February, driven by monthly price increases. Unprocessed food prices grew 0.7% year-on-year (up from 0.1% in January), while processed food eased to 3.1% (from 3.2%). At a more detailed level, food inflation has recently been largely driven by prices of cocoa products and chocolate, following wholesale market trends, and to a lesser extent by rising prices of bakery, cereal and meat products. On the supply side, price pressures in the food production chain have also partly driven recent food inflation; in particular higher prices of food commodities and non-food agricultural produce (see Figure 6.2).

Inflation excluding energy and food rose to 2.2% in February year-on-year, up from 2.1% in January. Services inflation increased by 0.1 percentage points to 3.9%, driven by monthly price rises and primarily influenced by domestic factors related to rising labour costs (see Figure 6.2). According to Banka Slovenije’s December projections, labour costs growth in 2025 will primarily stem from wage increases in the public sector, likely affecting prices in services of a public nature (Box 6.1). Year-on-year price growth for other goods remained low in February at 0.2%, despite rising by 0.1 percentage points from January. This indicates that the effects of past price shocks have largely waned,[34] reflecting the low growth in import prices and producer prices for the domestic market (see Figure 6.2).

7Fiscal Position

Last year’s narrowing of the consolidated general government deficit was supported by the sound economy, and in particular by a downsizing of extraordinary measures.

Driven by the narrowing of the state budget deficit, the consolidated general government deficit narrowed by more than a half last year to stand at EUR 953 million or 1.4% of GDP. The state budget deficit accounted for the majority of this as usual, while local government also ran a deficit.[39] The ZZZS ended the year with a surplus of EUR 79 million, having recorded a deficit of a similar size in the previous year. The ZPIZ ran a balanced budget, as it generally does, where the transfer from the state budget was just over EUR 300 million larger than in 2023, as a result of last year’s large pension increase of 8.8%.

The high growth of 11.5% in consolidated general government revenues is a reflection of the favourable economic situation, particularly in the labour market, and the permanent legislative changes of the transformation of supplementary health insurance into a compulsory health contribution, which led to high but temporary growth of 14% in social security contributions (see Figure 7.1, left). Personal income tax revenues recorded slightly lower growth, amid a lack of alignment in the income tax bands. On account of the settlements for the previous year, the favourable economic situation, and a five-year rise in the tax rate, corporate income tax revenues were up more than a third. Growth in taxes on goods and services was significantly more modest at 4.3%, as VAT revenues, which reflect domestic consumption, rose by 3.7%, and excise duties were up just a fraction on the previous year.

Consolidated general government expenditure rose by 5.7% last year. The rise was mainly driven by higher payments of pensions, wages and contributions to employees, and increased material costs, the latter partly on account of the post-flood reconstruction and the transformation of health insurance (see Figure 7.1, right). Conversely the ending of the previous European financial framework brought a decline in investment, where the government had otherwise been expecting growth even last autumn, and in subsidies, on account of the ending of support measures to mitigate high energy costs.

The state budget recorded a surplus of approximately EUR 400 million last year against the EU budget, similar to the previous year. In its drawdown of funding from the recovery and resilience facility Slovenia is behind the average of EU Member States, and is also slow in its drawdown of funding from the new financial framework, which is common at the very beginning of the financial framework. EU Member States overall have drawn down approximately half of their available funding from the recovery and resilience facility, while Slovenia has drawn down 41% (see Figure 7.2).

January’s surplus in the consolidated general government position was narrower in year-on-year terms, but growth in tax revenues remained high.

Similarly to last year, the consolidated general government position recorded a surplus in January of this year, in the amount of EUR 196 million, down EUR 166 million on last year. Year-on-year growth in general government revenues slowed compared with the final quarter of last year, despite the maintenance of high growth in tax revenues. The majority of the growth in tax revenues was driven by social security contributions. With higher tax rates, corporate income tax revenues increased by approximately a third. Growth in revenues from taxes on goods and services strengthened slightly compared with the final quarter of last year, while growth in personal income tax revenues slowed. Revenues from the EU budget declined in particular. January’s high growth in expenditure was partly attributable to a year-on-year rise in subsidies driven by earlier payments in agriculture, while investment expenditure also rose considerably. Expenditure on wages in January was up 7.3% in year-on-year terms, although it has not yet reflected the first wage rises under the new wage system; these were made when the January wage payments were made in February. The wage reforms will be implemented in several steps, and the total wage bill will thus increase gradually (see Box 7.1).

8Statistical Appendix

9List of abbreviations