Summary

Following a relatively favourable economic performance at the end of last year, domestic demand in Slovenia has moderated at the beginning of this year; meanwhile, risks to economic activity and inflation have increased amid the escalation of the war in the Middle East.

Economic growth in the euro area has continued at the beginning of this year and was driven by domestic demand. However, risks stemming from developments in the Middle East are increasing. Survey indicators suggest that, this year, economic activity continues to be supported primarily by services, while conditions are also improving in manufacturing, where the PMI indicator in February (which does not yet reflect the escalation of the conflict in the Middle East) rose above the growth threshold for the first time in six months. Despite the improvement in business sentiment, the escalation of the conflict in the Middle East at the beginning of March has heightened risks to further economic growth and price stability. This deterioration comes after, according to the latest available data, headline euro area inflation remained below the monetary policy target at 1.9% in February, while core inflation increased to 2.4% amid persistent price pressures in the services sector. An uptick is already expected in March due to a sharp rise in energy prices following the disruptions to global oil and natural gas supply.  

The ECB and Fed left their key interest rates unchanged at their latest meetings. The ECB Governing Council justified its decision by assessing that inflation will stabilise at the 2 % target over the medium term, while in the case of Fed, more encouraging data from the US labour market contributed to the maintenance of its policy stance. Following the outbreak of war in the Middle East, market expectations regarding further reductions in the Fed’s key interest rate have somewhat diminished, whereas expectations of a possible earlier increase of 25 basis points in the ECB’s key interest rates have strengthened.

Developments in international financial markets were broadly stable in February. At the beginning of March, volatility increased following the outbreak of war in the Middle East. US treasury yields and German government bond yields increased in early March amid heightened expectations that disruptions in energy supply would push inflation higher. Conversely, major global equity indices declined as investors fled towards safer assets, while the US dollar appreciated.

At the end of last year, economic developments in Slovenia were relatively favourable, primarily owing to stronger domestic demand; however, according to initial data, this momentum has been easing in the first months of this year. In the final quarter of last year, year-on-year GDP growth reached 2.0%, with the continuation of the government investment cycle and stronger private consumption, supported by the introduction of the mandatory Christmas bonus and the payment of the winter allowance for pensioners, providing the largest contributions. In contrast, foreign demand remained weak, as did exports and activity in manufacturing. At the start of this year, survey data suggest that conditions for exporters remained challenging. At the same time, some signs of a moderation in domestic consumption are emerging. The real growth of card payment values has slowed, the value of fiscally verified invoices has declined, and survey assessments of demand in construction and services were somewhat weaker in February. Based on the available set of indicators, nowcasting models point to 0.5% quarter-on-quarter economic growth in the first quarter.

Amid weak foreign demand and challenging conditions for exporters, the merchandise trade balance recorded a deficit last year. This has occurred only once in the past decade, namely during the energy crisis in 2022. Real merchandise exports declined last year, reflecting the impact of global trade policy developments on global demand and a further deterioration in external competitiveness. In contrast, real merchandise imports increased significantly, supported by robust domestic demand, particularly in the second half of the year. The current account continued to record a surplus (3.4% of GDP), solely due to the surplus in services trade, which further strengthened relative to the previous year. Initial indicators for this year suggest a continued contraction in merchandise exports, and the outlook remains unfavourable, as manufacturing firms did not report any significant increase in export orders in February.

At the end of last year, the divergence between the public and private sectors in the labour market continued. After declining for a year, the number of persons in employment increased year on year in December (by 0.3%), primarily as a result of hiring in the public sector. However, on average over the year it decreased due to contractions in the private sector, particularly in manufacturing. Registered unemployment at the beginning of this year was lower year on year but remained above last year’s average. In December, the average gross wage was lower year on year after a prolonged period (–0.5%), mainly reflecting a smaller volume of extraordinary payments at the end of the year, which companies likely partly replaced with the payment of the mandatory Christmas bonus. At the same time, the gap between the private and public sectors widened further. Wages declined in the former, while in the latter their growth was close to 10%.

Headline inflation, as measured by the HICP, increased to 2.8% in February. This was largely driven by energy prices, particularly a one-off base effect in electricity prices, which had been significantly reduced by government measures in February last year. Food price growth, at 4.3%, remains elevated but continues to moderate gradually, in line with the stabilisation of conditions on global food markets and among euro area producers. Weak demand and moderate external price factors were also reflected in slower growth in prices of other goods, which led to a decline in core inflation to 2.3%. By contrast, services inflation strengthened, consistent with strong growth in labour costs.

The deficit of the consolidated general government balance increased last year to 2.5% of GDP, being just over one percentage point higher than a year earlier. The increase reflects the moderation in economic growth and the effects of the public sector wage system reform. Towards the end of the year, investment growth accelerated, employees received a mandatory Christmas bonus, and pensioners received a winter allowance, both for the first time. The surplus in January was lower than in the same period last year. Social security contributions continued to make the largest contribution to revenue growth, while expenditure on wages was the main driver on the spending side. According to government plans, the annual deficit is expected to increase further this year despite the projected strengthening of economic growth, which reduces the space for countercyclical fiscal policy.

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In this edition, we provide a more detailed analysis of the macro-financial environment in Slovenia and the extent to which it supports or constrains corporate investment. Our findings indicate that over the past decade investment by Slovenian firms has lagged behind that of comparable euro area countries, despite lower corporate indebtedness and similar financing conditions. This gap is particularly evident in investment in intellectual property. In this context, access to finance has not shown to be a key constraint. Instead, firms identify uncertainty and unpredictability in the business environment, shortages of skilled labour, and cost-related and tax-administrative burdens as the most significant factors limiting investment.

Although financing remains one of the least restrictive factors for corporate investment, the structure of the macro-financial environment still falls short in supporting small and medium-sized enterprises and in fostering innovation and the digital transformation of the economy. Companies continue to perceive banks’ support primarily in relation to traditional forms of investment, such as equipment, machinery and real estate. Looking ahead, the expected composition of corporate investment in the medium term poses a risk to the continuation of the long-standing trend of a declining role of the banking system in corporate financing, observed in Slovenia since the debt crisis. The gradual reduction in the importance of bank financing also poses a challenge for economic policymakers, particularly in the area of monetary policy, as it may weaken their ability to ensure price and financial stability through the bank lending channel.

1International Environment

According to survey data, global economic growth has continued at the beginning of this year. The escalation of tensions in the Middle East, changes in trade policy in the United States, and the resulting heightened uncertainty represent the main risk going forward.

In the final quarter of last year, economic activity increased across major economies, however unevenly. In the United States, ongoing economic growth continued but slowed to 0.4% (previously 1.1%), mainly due to the federal government shutdown and a lower contribution from net exports. Private consumption remained the main driver of growth, although it moderated somewhat, while investment also made a significant contribution. Economic activity in the United Kingdom was virtually unchanged (0.1%), with modest growth primarily underpinned by a recovery in manufacturing amid stagnation in services. In Japan, economic activity – following a decline in the third quarter – increased only marginally, by 0.1%, while domestic demand remains weak. The same applies to China, where growth strengthened mainly due to a higher contribution from net exports (1.2%; previously 1.1%).

Global economic growth has continued this year, as confirmed by the composite PMI, which rose to 53.3 index points in February[1] (Figure 1.1, left). Activity continues to be driven primarily by services, while conditions in manufacturing have also improved, as reflected in greater business optimism. The easing of trade-related risks has also contributed in part to more favourable conditions, as indicated by an increase in new export orders following ten months of pronounced decline.

Due to the escalation of tensions in the Middle East and the spread of military conflict to other countries, risks to inflation and economic activity have increased significantly. The sharp rise in the global geopolitical risk indicator[2] (Figure 1.1, right) also confirms the increase in geopolitical risk. The escalation of the conflict is most directly reflected in rising energy prices, particularly for oil and liquefied natural gas. A key factor is the closure of the Strait of Hormuz, one of the most important maritime routes for energy exports, through which approximately 25% of global seaborne oil trade and 20% of global liquefied natural gas shipments pass. Attacks on oil and gas infrastructure are also contributing to higher prices. European liquefied natural gas prices are currently around 60% higher, while oil prices have increased by approximately 20%.[3]

Uncertainty regarding trade policy has also increased somewhat in the international environment, following the decision of the US Supreme Court to overturn the use of the International Emergency Economic Powers Act as the legal basis for most of the tariff measures introduced by the US administration last year. In response, the administration imposed a temporary additional tariff rate of 10 percentage points under Section 122 of the Trade Act, with the possibility of an increase to 15 percentage points for a period of up to 150 days,[4] while simultaneously seeking to establish a more permanent legal basis for maintaining previously agreed tariff rates. These changes temporarily alter the relative tariff burden among countries. Economies that were previously subject to the highest tariffs, such as China and Brazil, will be relatively less affected during this period, while countries with previously more favourable arrangements – particularly the United Kingdom and the EU – will see a reduction in their relative trade advantage.

Economic growth in the euro area, which at the end of last year was driven by domestic demand, has continued at the beginning of this year, supported by services and a renewed strengthening of manufacturing.

The euro area economy grew by 0.2% quarter-on-quarter in the final quarter of 2025 (Figure 1.2, left). Growth was mainly driven by domestic demand: household consumption contributed 0.2 percentage points, government consumption 0.1 percentage points, and investment in fixed assets a further 0.1 percentage points. The contribution of net exports was negative (–0.1 percentage points). By sector, most of the growth originated in services. Among the larger euro area members, GDP increased the most in Spain (0.8%), followed by the Netherlands (0.5%), Germany and Italy (0.3%), and the least in France (0.2%).

Survey data indicate that growth has continued at the beginning of this year. The composite PMI rose to 51.9 index points in February (Figure 1.2, right), with growth still primarily driven by services. Conditions also improved in manufacturing, where the indicator rose above the growth threshold for the first time in six months. The improvement is further confirmed by the European Commission’s Economic Sentiment Indicator, which reached its highest level since the first quarter of 2023 at the beginning of this year.

Risks to further strengthening of activity and price stability have increased with the escalation of the conflict in the Middle East. Uncertainty is further heightened by US trade policy, which has led the EU to temporarily postpone ratification of the trade agreement with the US. Trade-related uncertainty could further weaken export orders, with the negative effects of past changes in trade policies still present.

In February, headline inflation in the euro area remained below the two per cent target, while risks turned to the upside amid the escalation of tensions in the Middle East.

Headline inflation in the euro area as measured by the HICP increased to 1.9 % in February, up by 0.2 percentage points (Figure 1.3, left). The increase was driven by energy and core inflation, while food inflation remained unchanged. Energy prices were 3.2 % lower in year-on-year terms (4.0 % in January), reflecting a positive base effect and ongoing price increases. As the conflict in the Middle East escalated, price pressures increased due to a surge in global oil and natural gas prices. Accordingly, risks to the year-on-year growth in energy prices and headline inflation have turned to the upside.

The year-on-year growth in food prices remained at 2.6 % amid a continued divergence between unprocessed and processed food inflation. Unprocessed food inflation accelerated to 4.6 %, partly reflecting ongoing price increases and adverse weather conditions at the beginning of the year. By contrast, processed food inflation declined to 1.8 % and has fallen for the seventh consecutive month, reflecting the easing of food commodity prices on global markets.

Core inflation excluding energy and food increased by 0.2 percentage points to 2.4 % in February. The increase was mainly driven by services prices, which were 3.4 % higher in year-on-year terms (3.2 % in January). ECB indicators point to a gradual normalisation of wage pressures this year; alongside more moderate domestic price pressures, this could contribute to a gradual moderation in services price growth. The year-on-year growth in prices of non-energy industrial goods (hereinafter: other goods) strengthened to 0.7 % (0.4 % in January) but remains low. This is consistent with weak import price pressures, reflecting the appreciation of the euro and imports of cheaper goods from China.

In February, the gap between headline inflation in Slovenia and the euro area widened to 0.9 percentage points, reflecting a larger contribution of energy prices in Slovenia (Figure 1.3, right). Core inflation rates were almost aligned – Slovenia's rate was 0.1 percentage points lower. The range of headline inflation among euro area member states decreased to 3.0 percentage points, the lowest since the start of the pandemic. For the third consecutive month, Slovakia registered the highest headline inflation rate (4.0 %), while Cyprus again recorded the lowest (0.9 %).

2Monetary Policy and Financial Markets

In February, the Eurosystem maintained the interest rate on the deposit facility at 2.00%, while the Fed kept its key interest rate within the range of 3.50% to 3.75% at its January meeting.

The ECB Governing Council assesses that inflation will stabilise at the 2% target over the medium term, while the economy remains resilient despite a challenging global environment. With inflation moderating and inflation expectations remaining stable, the Eurosystem kept all three key interest rates unchanged at its February meeting. Accordingly, the interest rates on the deposit facility, main refinancing operations, and the marginal lending facility remain at 2.00%, 2.15%, and 2.40%, respectively.

At its January meeting, the Fed left its key interest rate within the range of 3.50% to 3.75%. This decision primarily reflected more encouraging data from the US labour market.[13] Key interest rates also remained unchanged in the United Kingdom (3.75%), 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 3.85%, due to persistently elevated inflationary pressures.

Following the outbreak of war in the Middle East, market participants’ expectations of higher inflation strengthened due to disruptions in energy supply. As a result, since the beginning of February, their expectations regarding further reductions in the Fed’s key interest rate have diminished, while investors no longer rule out the possibility of a 0.25 percentage point increase in the ECB’s key interest rates this year. Current overnight index swap (OIS) rates indicate that markets expect one to two further reductions of 0.25 percentage points in the Fed’s key interest rate by the end of 2026, which would lower the corridor to 3.00% to 3.25% (see Figure 2.1, left).

Major global equity indices have mostly declined since the beginning of February, while both the US dollar and the price of oil have strengthened following the escalation of the conflict in the Middle East.

US treasury yields declined in February, primarily due to the publication of January inflation data, which came in below expectations. Similarly, German government bond yields also decreased, following the movements in US yields. At the beginning of March, yields on both markets increased amid concerns that the war in the Middle East would result in a more persistent rise in inflation. Consequently, yields on German short-term government bonds have risen by 0.11 percentage points since the beginning of February, while yields at longer maturities have remained unchanged. Yields on US short-term Treasuries are also close to their levels at the beginning of February, whereas yields at longer maturities have decreased by 0.13 percentage points over the entire period (see Figure 2.1, right). Spreads between yields on euro-denominated bonds with higher credit risk and German government bonds have widened slightly during the period, as investors moved towards safer assets.

Since the beginning of February, major global equity indices have exhibited divergent trends (see Figure 2.2, left), with developments in the Middle East exerting a significant influence. In the United States, equity indices declined in February, driven by increased investor concerns over the elevated valuations of US technology firms and the profitability of investments in artificial intelligence. In early March, a reduced appetite for riskier assets further contributed to this downward movement. During this period, the S&P 500 index fell by 2.1%, while the index comprising the seven largest US technology companies (the so-called Magnificent Seven) declined by 6.1%. The main European index, STOXX Europe 600, reached an all-time high at the end of February, supported by robust economic data and corporate earnings among European companies, but subsequently decreased by 4.3% at the beginning of March. The technology-oriented Hang Seng index in Hong Kong lost 3.8% of its value since the start of February.

The value of the US dollar appreciated by 1.6% against the euro and by 1.4% against a basket of major global currencies since the beginning of February (see Figure 2.2, right), mainly as a result of investors shifting towards safer currencies amid heightened geopolitical tensions in the Middle East. The price of gold has increased by 9.4% since the beginning of February but remains 8.8% below its historical peak at the end of January (USD 5,595 per ounce). The recent rise in gold prices has been driven by increased demand following a pronounced decline at the end of January and by escalating tensions in the Middle East, while the stronger US dollar has partly limited further gains. The price of Brent crude oil has risen by 29.6% since the beginning of February, mainly due to disruptions in energy supply through the Strait of Hormuz.

3Domestic Economic Activity

Growth in domestic‑market activity strengthened in the final quarter of last year, while foreign demand remained subdued.

At the end of last year, quarterly GDP growth stood at 0.4%, only slightly above the euro area average, while year‑on‑year growth reached 2.0%. The expansion of domestic demand remained strongly influenced by government activity, which among other measures intensified construction investment last year. These investments again accounted for the bulk of the overall year‑on‑year growth in gross fixed capital formation, which reached 12.0%. Final consumption also strengthened noticeably: the increase in private consumption coincided with the introduction of the mandatory Christmas bonus and the payment of the winter allowance for pensioners, while the rise in government consumption reflected the launch of long‑term care implementation. Given this structure of economic growth, imports were significantly stronger than exports. The negative contribution of net external trade widened to 3.1 percentage points and, amid challenging conditions in foreign markets, was the only drag on GDP growth from the expenditure perspective (Figure 3.1, left).

The composition of demand was also reflected in developments in value added. Construction stood out markedly, with value added rising by 16.5% year‑on‑year, supported by strong momentum in government‑driven infrastructure projects. This contributed 1.0 percentage point to GDP growth (Figure 3.1, right). According to monthly statistics, activity strengthened across all segments of construction works. Growth in value added in private services also remained favourable, again exceeding 2.0%. Overall services growth was held back mainly by weak activity in the segment of transportation and storage linked to international goods trade. Solid growth in value added in public services continued as employment increased further. By contrast, the challenging conditions in the international environment keep reflecting in manufacturing, where value added declined by 2.6%. Among the major industries, activity was higher year‑on‑year only in food production, while it fell more noticeably in the manufacture of fabricated metal products, electrical equipment, motor vehicles, and other machinery and equipment. According to a rough estimate, it also declined in the pharmaceutical industry. Weak production is gradually spilling over into the labour market (see Chapter 4).

After a stable January, sentiment in the economy deteriorated in February, and according to several indicators domestic demand moderated at the beginning of the year.

The value of the economic sentiment indicator remained unchanged in January compared with December, but in February it declined to its lowest level in the past year. Confidence weakened across all groups of activities and slightly among consumers. The more pronounced decline in manufacturing was mainly the result of lower production expectations and an increase in inventories. Assessments of current orders also fell somewhat, and firms continue to report elevated uncertainty regarding economic conditions; the survey was conducted before the outbreak of the conflict in the Middle East (Figure 3.2, left). In construction, survey indicators point to a moderation of activity, with orders decreasing in February for the first time since June last year. Lower month‑on‑month and year‑on‑year assessments of demand in February also contributed to the decline in confidence in private services excluding trade, although it remained at a relatively high level.[14] A similar pattern is observed among consumers, who continue to assess their financial situation relatively favourably, while maintaining elevated inflation expectations.

According to the initial real activity indicators, domestic consumption moderated at the beginning of the year. Year‑on‑year real growth in the value of card payments and cash withdrawals slowed to 2.1% in January and February combined, while the value of fiscally verified invoices even declined by 2.0% (Figure 3.2, right). Weaker spending is also suggested by the January fall in the volume of sales in retail trade and in motor vehicles.

4Labour Market

After a year of decline, the number of persons in employment increased year on year in December, with the public sector making the key contribution.

Following a year of declining employment, the number of persons in employment increased by 0.3% year on year in December (Figure 4.1, left). This was partly driven by retirement dynamics, as according to estimates by the Pension and Disability Insurance Institute of Slovenia (ZPIZ) retirement conditions at the end of last year were less favourable than a year earlier, prompting some employees close to retirement to postpone their retirement by several months.[46] Most of the positive year-on-year growth was generated by the public sector. This can partly be attributed to the aforementioned retirement effect, as the public sector employs a relatively larger share of older workers,[47] and partly to the need to maintain the provision of public services, particularly in education, social work activities without accommodation, associated with the implementation of long-term care, and healthcare.

On average last year, the number of persons in employment declined by 0.3% compared with the previous year. The contribution of public sector activities remained positive throughout the year and averaged 0.5 percentage points.[48] By contrast, the contribution of private sector activities amounted to –0.8 percentage points, with the most negative contribution recorded in manufacturing, particularly in the manufacture of fabricated metal products, motor vehicles, trailers and semi-trailers, and machinery and equipment, where the decline in activity was also the most pronounced. By citizenship, the contribution of Slovenian nationals to the growth in the number of persons in employment was negative (–0.5 percentage points), while the contribution of foreign nationals remained positive throughout the year (0.3 percentage points), with their share among persons in employment averaging 16.0% over the year.[49]

Expected employment growth remained modest in February according to the survey by the SURS, apart from construction. This is also confirmed by the job vacancy survey, according to which demand for labour has been declining over the past three years. The number of job vacancies last year was 8.2% lower than a year earlier. By activity, the decline was most pronounced in transportation and storage, while vacancies increased in manufacturing. Together with monthly data showing declining employment in this activity, this points to persistent structural mismatches in the labour market, which is also confirmed by data on shortages of skilled workers that remain above the long-term average (Figure 4.1, right).

Registered unemployment declined at the beginning of the year but remained above last year’s average.

After four months of year-on-year growth at the end of last year, the number of registered unemployed persons declined in the first two months of this year. In February there were 48,096 registered unemployed, which was 0.4% fewer than a year earlier but still 5.9% above last year’s average (Figure 4.1, left). In structural terms, the year-on-year decline was mainly recorded among persons aged over 50 and those with upper secondary education, while the number increased among persons aged under 25 and among those with the lowest and highest levels of education. In the first two months of the year, outflows from unemployment were smaller than in the same period last year, mainly owing to fewer transitions into employment. At the same time, fewer persons newly entered unemployment because the number of redundancies was lower. The registered unemployment rate stood at 4.8% in December last year, which was unchanged from a year earlier and 0.2 percentage points above last year's annual average. The survey unemployment rate stood at 4.1% in the final quarter of last year, which was 0.6 percentage points higher than a year earlier and 0.2 percentage points above last year’s average.

Wage developments at the end of last year were marked by a year-on-year decline in the average gross wage and a widening gap between the public and private sectors.

The year-on-year change in the average gross wage turned negative in December last year for the first time in three and a half years (–0.5%; Figure 4.2, left). The main reason for the decline was the smaller volume of extraordinary payments, which companies likely partly replaced with the payment of the mandatory Christmas bonus.[50] Owing to relatively stronger price growth, the year-on-year real decline in the average gross wage was even more pronounced (–3.0%). On average over the year, growth in the average gross wage stood at 5.9%, which was 0.3 percentage points lower than a year earlier. Real growth amounted to 3.3%, which was almost one percentage point less than in the previous year.

The divergence in the year-on-year change in the average gross wage between the private and public sectors widened further in December. In the private sector, the average gross wage was 3.9% lower year on year, while in the public sector it was 6.1% higher. On an annual basis, wages in the private sector increased by 3.9% or 1.4% in real terms. In the public sector, wage growth was significantly higher due to the reform of the wage system and amounted to 9.4% or 6.7% in real terms.

The divergence between the two sectors is also confirmed by national accounts data.[51] On an annual basis, growth in compensation of employees per employee in private sector activities (6.4%) was half that recorded in public sector activities (12.9%). In both sectors, growth in compensation per employee exceeded growth in labour productivity, which amounted to 4.3% in private sector activities and 9.7% in public sector activities. Last year’s growth in compensation of employees was dampened by a larger year-on-year decline in the number of employees and by a smaller contribution of compensation per employee in the private sector. At the same time, it was supported by the contribution of compensation per employee in the public sector (Figure 4.2, right).

5Current Account

The merchandise trade balance recorded a deficit last year, an outcome observed in the past decade only during the energy crisis in 2022.

Real merchandise exports[52] declined by 0.2% last year, while real imports increased by 2.0%, reducing real GDP growth by 1.4 percentage points. The negative contribution of merchandise trade to GDP growth deepened over the course of the year, mainly due to the accelerated growth of imports in the second half, which followed the strengthening of domestic demand. The terms of trade, calculated as the ratio of export to import prices, improved during the year and increased by 0.9% overall. Export prices rose, while import prices declined, which, in the context of falling real exports, points to a deterioration in the price and cost competitiveness of exporters and a shift in the structure of exports.

According to balance of payments data, nominal merchandise exports increased by 0.4% last year, while nominal merchandise imports were 1.7% higher. The merchandise trade balance showed a deficit of EUR 149 million, a development observed in the past decade only during the energy crisis of 2022.

Global uncertainties had the greatest impact last year on merchandise exports to Switzerland and the United States, while in the first half of the year, exports of road vehicles to France also declined sharply. Exports to Germany, Slovenia’s largest trading partner, decreased for the third consecutive year, primarily due to lower exports of industrial machinery and road vehicles.[53] In terms of structure, machinery and transport equipment, especially road vehicles,  account for the largest share of nominal merchandise exports, followed by chemical products, in particular medical and pharmaceutical products (see Figure 5.1, left). The shares have shifted slightly over the past three years (see Figure 5.1, right); the share of machinery and transport equipment has decreased somewhat, while the share of chemical products has increased. 

By contrast, the structure of nominal imports by main product categories remained relatively unchanged over the same period (see Figure 5.1, right). Machinery and transport equipment continue to account for the largest share, followed by chemical products, particularly medical and pharmaceutical products, and industrial materials such as iron, steel, and non-ferrous metals (see Figure 5.1, left). In terms of partner countries, a certain shift away from the largest trading partners has been noted in the past year, as the share of imports from Germany and Italy declined, while imports from some other Central European countries, such as Croatia, Austria, and Poland, increased. The share of imports from China remains broadly unchanged (around 5%), with growth primarily in imports of electrical machinery and equipment, road vehicles, metal products, and industrial machinery.

Initial indicators for this year suggest a further contraction in nominal merchandise exports. According to SURS, exports declined by 3.7%[54] year-on-year in January, and the outlook remains unfavourable, as manufacturing firms did not report any significant increase in export orders in February. At the same time, economic sentiment in key partner countries deteriorated slightly in February, although it remained above last year’s peak; these measurements, however, do not yet reflect the escalation of conflicts in the Middle East.[55] Merchandise imports, according to SURS, decreased by 5.8% year-on-year in January, in line with the economic sentiment and initial consumption indicators, which point to a moderation in domestic demand (see Chapter 3).

The current account surplus was attributable solely to the surplus in services trade.

Real exports of services increased by 2.2% last year, while real imports grew by 2.9%. Despite the faster growth of imports, the contribution of services trade to real GDP growth was neutral, owing to the somewhat larger volume of exports. The terms of trade in services improved slightly (by 0.2%), particularly in the second half of the year, when export prices increased more markedly than import prices. This partially mitigated the year-on-year decline in the current account surplus (see Figure 5.2, left), which last year was derived exclusively from the surplus in services trade, reaching a record EUR 3.9 billion. Half of this surplus was generated by transport services and travel, with the surplus in both categories increasing further compared to the previous year (see Figure 5.2, right).

More than half of last year’s services exports consisted of travel, which increased by 4.6%[56] amid a record tourist season, and transport, which rose by 2.6%, although transport exports began to decline towards the end of the year. Data for the first 60 days of this year indicate a continued increase in travel services exports, as the number of overnight stays by foreign tourists was 8.3% higher year-on-year.[57] The share of insurance services in total services exports doubled to 5.5% last year, as one of the insurance firms entered into a major long-term contract. Services exports to Germany declined, while exports to Italy increased, primarily as a result of the aforementioned insurance transaction. On the import side, imports of insurance and other business services increased, while imports of transport services fell by 15.1%.

The primary income deficit narrowed by EUR 332.0 million last year, amounting to EUR 427.5 million. This was mainly the result of a decline in dividend payments on equity holdings by companies, which coincides with weak value-added growth in sectors with a higher share of foreign-owned firms, and an increase in labour income earned abroad by Slovenian residents, which is associated with higher receipts from Austria. The secondary income deficit increased by EUR 586.9 million, reflecting, among other factors, higher expenditure on various current transfers.

The current account surplus amounted to EUR 2.4 billion last year, or 3.4% of GDP, which is 1.1 percentage points lower than in 2024.

6Inflation

Inflation accelerated in February, primarily due to the impact of last year's measures on electricity prices.

Year-on-year growth in consumer prices, as measured by the HICP, strengthened to 2.8% in February, after standing at 2.4% in January. The acceleration was driven primarily by energy prices, and to a lesser extent by unprocessed food and services prices. By contrast, price growth in processed food and non-energy industrial goods dampened February’s inflation (Figure 6.1, left). With tensions in the Middle East intensifying, risks to the further moderation of price growth have also increased. Higher oil and natural gas prices on global markets, reflecting heightened uncertainty and reduced supply, are expected to pass through to consumers with a lag and affect other price groups too.

Energy prices were 2.8% higher year on year in February, after having declined by 2.1% in January. The turnaround was mainly due to a one-off base effect in electricity prices, resulting from the implementation of the emergency law mitigating the impact of high network charges on households at the beginning of 2025.[63] We estimate it contributed 0.5 percentage points to the February's annual inflation rate. To a lesser extent, the rise in energy prices was also supported by solid fuels, which recorded a second consecutive month of pronounced price increases and were 16.6% more expensive than in December 2025.

By contrast, food inflation has been easing over the past few months, decelerating to 4.3% in February year-on-year, or 0.3 percentage points lower than in January.[64] The slowdown was entirely driven by developments in processed food prices, which have remained practically unchanged since November last year. Over this period, their contribution to food inflation nearly halved, to 1.7 percentage points. In contrast, the contribution of unprocessed food prices increased markedly, to 2.5 percentage points, mainly reflecting higher prices for fruit and vegetables. Conditions along production and supply chains are generally easing, as food commodity prices on global and euro area markets have been declining since mid-last year. Stabilisation is also evident further downstream in the chain, particularly in import prices, while domestic producer prices remain elevated; most recently, in January, they were 4.7% higher year on year.

Core inflation continues to be driven mainly by domestic factors, related to developments in the labour market.

Core inflation, i.e. inflation measured excluding energy and food prices, stood at 2.3% in February, 0.1 percentage points lower than in January. The slowdown reflected weaker year-on-year growth in prices of other goods, which declined by 0.5 percentage points to 0.3%, mainly due to a base effect amid relatively high monthly rate in February last year. Nonetheless, other goods inflation remains supported by domestic cost factors, as evidenced by the divergence between growth rates of import and domestic producer prices (Figure 6.1, right). The gap can be primarily attributed to rising labour costs and their pass-through into consumer prices.

Rising labour costs are also reflected in services inflation, which increased to 3.9% (January 3.7%; Figure 6.2, left), following an exceptional month-on-month increase in February.[65] Indeed, the inflation momentum indicator[66] confirms the persistence of services inflation, having picked up again in recent months after gradually declining last year and signalling fading inflationary pressures. At the same time, since November, the share of services firms expecting to raise selling prices has been increasing again, particularly in rental and leasing activities, services to buildings and landscape activities, warehousing, storage and support activities for transportation, as well as in the accommodation and food service activities.

Developments in core inflation remain primarily driven by domestic price factors. In the last quarter of 2025, growth in the GDP deflator, which measures the price growth of domestically produced goods and services, remained at 3.7% year-on-year. Labour costs continued to be its main driver, although their impact on consumer prices was partly offset by higher labour productivity. Over the same period, the contribution of unit profits has also increased, which could indicate a rebound in profit margins (Figure 6.2, right).

7Fiscal Position

The deficit of the consolidated general government balance increased by just over one percentage point last year to 2.5% of GDP and is expected to increase further this year.

According to the cash-flow methodology, the deficit of the consolidated general government balance amounted to EUR 1,773 million last year, or 2.5% of GDP, while in the previous year it had been considerably lower at 1.4% of GDP (Figure 7.1). Most of the deficit originated from the central government budget (EUR 1,711 million); municipalities halved their deficit to EUR 112 million, while the Health Insurance Institute of Slovenia (ZZZS) recorded a surplus at the end of the year. With the deficit projected to increase further this year – despite the expected improvement in economic activity – the fiscal space for countercyclical measures in case of larger shocks is narrowing.

The main driver of growth in consolidated general government revenue last year was social security contributions, while expenditure growth was most strongly marked by the public sector wage reform.

Revenue of the consolidated general government balance increased by 6.2% last year, or by EUR 1.7 billion (Figure 7.2, left). Compared with the previous year, revenue growth moderated; partly owing to slower economic growth, and partly due to fiscal policy measures. Social security contributions continued to make the largest contribution to revenue growth, although their growth slowed despite the introduction of a new long-term care contribution in the second half of the year. The slowdown was mainly the result of the high base from 2024, when supplementary health insurance contribution was transformed into a compulsory health contribution. Corporate income tax revenue declined mainly owing to a smaller settlement for the previous year. Growth in domestic taxes on goods and services and in personal income tax revenue was also lower than in the previous year, the latter reflecting the adjustment of the tax brackets and allowances.

Expenditure of the consolidated general government balance increased by 8.9% last year, or by EUR 2.7 billion (Figure 7.2, right). The acceleration in growth towards the end of the year mainly reflected higher investment and the payment of winter bonuses to employees (Christmas bonuses) and a winter allowance for pensioners. Over the year, the largest contribution to expenditure growth came from spending on wages and social contributions for employees (a 14.2% increase); this was related to the gradual implementation of the wage reform from 2025 onwards, the wage adjustment in June 2024, promotions at the end of 2024, and the introduction of the winter bonus. The number of employees in the general government sector also increased. Growth in transfers to individuals and households was slightly higher than in the previous year and was more pronounced in December due to the payment of the winter allowance for pensioners. Investment expenditure and investment transfers increased by 11.0%, contributing mainly to overall expenditure growth towards the end of the year. Subsidies declined by one quarter. The moderation in the growth of expenditure on goods and services reflected the transfer of most recovery costs from August 2023 floods to the Recovery Fund, which is not included in the consolidated general government balance. According to data from the Fiscal Council, close to EUR 400 million was spent last year on floods recovery, mostly covered from the Recovery Fund and partly from EU funds.

The surplus of the consolidated general government balance was significantly lower in January than a year earlier, as expenditure grew faster than revenue, primarily reflecting the impact of the public sector wage reform.

The surplus of the consolidated general government balance amounted to EUR 39 million in January, which was considerably less than in January last year (EUR 196 million). Expenditure increased more strongly than revenue in year-on-year terms. Revenue growth continued to stem mainly from social security contributions. In addition, value added tax and revenue from the EU budget related to the Recovery and Resilience Facility also made a significant contribution to revenue growth in January. The increase in expenditure largely reflected the public sector wage reform. The year-on-year increase was also influenced by higher spending on pensions and certain monthly fluctuations in expenditure, mainly related to transfers to budgetary funds (primarily to the Recovery and Resilience Fund), as well as higher agricultural subsidies. According to data from the consolidated general government balance, investment declined year on year; however, a substantial share of government investment is carried out through budgetary funds, which increased investment in January.[67]

The government will repay most of the debt maturing this year in the first quarter; the rating agency Moody's has upgraded the rating of long-term government debt.

By the end of March this year, the government will repay EUR 2.5 billion of debt issued through two bonds, representing the majority of the debt maturing this year. The coupon interest rate of the two bonds, weighted by the principal, stands at 3.0%. In January, the government issued a new ten-year euro-denominated bond (RS98) and increased the size of its issue in February. The total amount of both issuances was EUR 2.5 billion, with a coupon interest rate of 3.275%. The government is also continuing the issuance of treasury bills this year.

At the end of February, Moody's upgraded the sovereign long-term debt rating from A3 to A2 and changed the outlook from positive to stable. Among the key reasons for the upgrade, the agency cited the adoption of the pension reform. The agencies Fitch Ratings and S&P Global Ratings had already upgraded the sovereign credit rating last year.

8Selected Theme

8.1The role of the financial system in corporate investment activity and economic restructuring

Corporate investment is a key determinant of developments in productivity, competitiveness and long-term economic growth, and is closely intertwined with the financial system (Figure 8.1.1).[68] By contrast, the period after the global financial crisis, in Slovenia also followed by a banking and sovereign debt crisis, was characterised by a sharp decline in the share of investment in GDP, alongside accelerated corporate deleveraging. After the share of investment in GDP had fallen below 20% in the period 2010–2020, it strengthened somewhat again following the pandemic. Corporate financial liabilities subsequently increased as well, although only as a result of stronger equity financing, while the share of bank loans in GDP continued to decline.

In this selected topic, we analyse whether the weak firms' investment activity in the past period was the result of limited access to financing – particularly bank financing – or whether weak lending activity merely reflected conditions in the real economy and lower demand for financial resources. At the same time, we examine whether the financial system adequately supports the economy’s current needs, which are increasingly driven by investment in advanced technologies and research and development.

While financing remains among the least constraining factors for corporate investment, the structure of the macro-financial environment still provides insufficient support for innovation and the digital transformation of the economy.

Survey indicators from the Statistical Office of the Republic of Slovenia (SURS) for manufacturing, construction and retail trade point to a pronounced deterioration in the financial position of corporations during the economic and sovereign debt crisis (2009–2014), followed by a marked improvement during the period of corporate deleveraging and a relatively limited impact of monetary policy tightening during the recent period of elevated inflation. The share of corporations reporting financial constraints as a limiting factor for current business operations has been below the long-term average for 2003–2025 for almost a decade and is currently at historically low levels (Figure 8.1.2, left).

Corporations, particularly large firms, also continue to report access to financing as one of the least constraining factors for investment.[69] By contrast, the most frequently highlighted factors for corporate investment activity relate to uncertainty in the domestic and external macroeconomic environment, the availability of skilled labour, and administrative and tax burdens (Figure 8.1.2, right). Consistent with this, corporations assess that investment activity would be most strongly supported by a predictable business environment and a supportive tax and regulatory framework, while measures aimed at improving the development of capital markets and alternative forms of financing are generally not perceived as important drivers of investment.[70]

Empirical findings confirm that constraints on access to financing do not explain the persistently weak corporate investment activity in Slovenia following the global financial crisis.

The signals provided by survey indicators, suggesting that the supply and availability of financing generally do not constrain corporate operations and investment, are also confirmed by empirical analysis of lending activity in Slovenia. This analysis evaluates the extent to which access to bank loans can explain developments in corporate investment following the global financial crisis. The main findings, presented in Box 3.4, indicate that while access to bank loans has a statistically significant impact on corporate investment, the time profile of loan supply does not support the hypothesis that financing constraints were the main driver of persistently weak investment activity in the period following the global financial crisis. Similarly, the analysis in Box 3.5, which decomposes investment growth into demand and supply factors in the bank lending market, finds only a limited and temporary impact of bank loan supply on past investment activity.

Despite favourable financing conditions and access to funding, there are signs of segmentation between large firms and small and medium-sized enterprises.

Based on the Survey on the Access of Enterprises to Finance, the financial gap can be defined as the difference between corporate financing needs and the availability of external financial resources (Figure 8.1.3, left). The results for 2025 indicate that the financial gap for large corporations turned negative, implying the availability of excess financial resources relative to needs for external funding. By contrast, the financial gap widened for small and medium-sized enterprises (SMEs), reflecting a deterioration in the relationship between their need for external financing and the availability of such resources.

The wider financial gap for SMEs could, in addition to limited access to equity financing, also reflect comparatively less favourable treatment by domestic banks. Although SMEs across the euro area face higher borrowing costs than large corporations, the spread in Slovenia was on average 45 basis points higher over the period 2020–2025 (Figure 8.1.3, right). Given broadly comparable financing conditions for large firms, this difference is entirely attributable to relatively less favourable financing conditions for Slovenian SMEs compared with peers in the euro area. At the same time, Slovenian SMEs borrowing from banks abroad face interest rates broadly comparable with the euro area average. These factors may partly explain the relatively smaller share of SME loans in the credit portfolios of domestic banks compared with the euro area and may point to a stronger orientation of the Slovenian banking system towards large corporations and traditional investment classes, such as investment in machinery and equipment.

The structure of corporate financing and investment points to a limited transition towards a knowledge-based economy and advanced technologies.

Similarly to the relatively more favourable access to financing for large firms, the structure of corporate investment and its financing suggests that the macro-financial environment in Slovenia remains predominantly oriented towards traditional investment. Since 2015 the share of investment in GDP in Slovenia has been below the EU average, with the gap particularly pronounced in investment in intellectual property products (Figure 8.1.4, left).[71] The relatively low level of technologically advanced investment is also reflected in the ratio between tangible and intangible investment, which has remained broadly unchanged over the past three decades (Figure 8.1.4, right). By contrast, most EU countries have seen an increasing divergence between the growth of tangible and intangible investment. Consequently, the share of intangible investment has increased across the EU, reflecting a faster digital transition and more intensive investment in advanced technologies compared with Slovenia. In Slovenia, however, the share of intangible investment in GDP in 2025 was even lower than in 1995.[72]

The gap between Slovenia and the euro area in exposure to investment in intangible assets is also visible in the financial sector. The share of bank loans to nonfinancial corporations secured by at least one intangible collateral in total secured corporate loans is around 20% in the euro area, while in Slovenia it has been declining steadily towards 5% (Figure 8.1.5, left). In terms of loan volumes, the share is about 20% for euro area banks, while it has recently approached 10% at Slovenian banks. Detailed data show that following the pandemic Slovenian nonfinancial corporations have gradually reduced their exposure to domestic banks through loans secured by intangible assets, while the volume of such transactions with foreign banks abroad has increased (Figure 8.1.5, right). In December last year, the volume of these loans at domestic banks amounted to approximately EUR 665 million, representing a decline of almost 40% compared with January 2020. By contrast, loans secured by at least one intangible asset to Slovenian nonfinancial corporations at foreign banks abroad averaged around EUR 170 million in 2025, approximately one third more than in 2020. In addition, in 2025 such loans accounted on average for slightly more than one fifth of all secured loans to Slovenian corporations contracted with foreign banks. This suggests that this type of financing represents an important motive for firms to seek financing abroad.

Weaker bank support for corporate investment in digital technologies and intellectual property products is also indicated by the Survey on the Access of Enterprises to Finance. The share of firms assessing banks as unsuitable partners for investment in advanced digital technologies and research and development exceeds the share of positive responses by more than 10 percentage points. Slovenian firms therefore still primarily associate bank support with traditional investment activities, such as investment in equipment and machinery and investment in real estate (Figure 8.1.6, left). In the absence of alternative sources of financing, this could lead to an inadequate financial structure and insufficient support for the restructuring needs of the economy and expected future investment activity. In particular, the data from Banka Slovenije’s Survey on access to finance shows that 60% of surveyed firms plan to invest in advanced digital technologies over the next three years. Investment in human capital and employee training also ranks high among firms’ priorities, at around 70%, while planned investment in research and development is reported by around 40% of firms (Figure 8.1.6, right).

The diminishing role of the banking system in corporate investment activity represents a continuation of the trend observed since the global financial crisis. In addition to insufficient support for the transformation of the economy, this also constrains the countercyclical mechanisms of economic policy.

According to financial accounts data, the share of equity in corporate financial liabilities has increased since 2005, reaching 58% last year (Figure 8.1.7, left). By contrast, the share of bank loans has halved from just over 16% to 8%, with the gap being partly filled by the growing prevalence of trade credit among enterprises.[73] This was strongly influenced by the global financial crisis, followed by corporate deleveraging and the reduction of banks’ exposures during their restructuring.[74] At the same time, the substitution of bank loans with trade credit reflected the increasing integration of corporations into supply chains and the search for flexible instruments for managing working capital, particularly during periods of uncertainty and higher financing costs. The rising share of equity also indicates that corporations are increasingly financing themselves with own funds, capital injections and retained earnings (Figure 8.1.7, right).

Within loans, which together account for around 20% of all sources, a structural shift is evident in favour of foreign and non-bank sources of credit, alongside a decline in the relative importance of domestic banks, particularly in short-term financing. In recent years, corporate investment has thus been maintained despite the relatively low presence of bank loans, indicating that the investment cycle is increasingly financed through internal funds accumulation and, to some extent, cross-border sources, with the domestic banking channel acting as a weaker accelerator of the cycle than in the past.

The continuation of such patterns could result in a diminishing role for the banking system and its ability to adapt to the future investment needs of corporations. Without adequate substitution of bank-based funding, a gap could emerge in the Slovenian macro-financial environment, leading to insufficient support for growth – particularly for small and medium-sized enterprises with limited access to equity financing. At the same time, this would also reduce the effectiveness of economic policy mechanisms for countercyclical action, such as the bank lending channel of monetary policy.[75]

9Statistical Appendix

10List of Abbreviations