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, which at the end of last year was being driven by domestic demand, has continued at the beginning of this year. 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 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 service sector. An uptick is already expected in March due to a sharp rise in energy prices following the disruptions to global oil and gas supplies.

The ECB and Fed left their key interest rates unchanged at their latest meetings. The Governing Council of the ECB 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. Foreign demand remained weak by contrast, as did exports and activity in manufacturing. At the start of this year, survey data suggests that conditions for exporters remained challenging. At the same time some signs of a moderation in domestic consumption are emerging. Real growth in 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% quarterly 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, 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 remained in 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 down in year-on-year terms, but remained above last year’s average. The average gross wage was down in year-on-year terms (by 0.5%) in December, its first fall in a long time, largely as a result of smaller extraordinary payments at the end of the year, which firms most likely replaced in part with the mandatory Christmas bonus. The gap between the public and private sectors widened: wages in the latter fell, while the former saw growth of almost 10%.

Headline inflation as measured by the HICP rose 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 inflation remains elevated at 4.3%, but is continuing its moderate slowdown 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%. Service price inflation strengthened by contrast, consistent with strong growth in labour costs.

The consolidated general government deficit increased to 2.5% of GDP last year, just over a 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 wages were the main driver on the expenditure side. According to the government plans, the deficit is forecast to widen even further this year, despite the projected rise in economic growth, which is reducing the space for fiscal policy to act countercyclically.

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In this edition we provide a more detailed analysis of the macrofinancial 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 macrofinancial environment still falls short in supporting small and medium-sized enterprises and in fostering innovation and the digital transformation of the economy. Firms still see banks as supportive in traditional types of investment, such as machinery and equipment, and real estate. Looking ahead, the expected composition of corporate investment in the medium term poses a risk of 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, albeit unevenly. In the United States current 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%, up from 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, the 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 surrounding 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% under Section 122 of the Trade Act, with the possibility of an increase to 15% 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 between 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 being 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 gross fixed capital formation a further 0.1 percentage points. The contribution of net exports was negative (in the amount of 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 indicates 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 in the early part of this year reached its highest level since the first quarter of 2023.

Risks to the further strengthening of activity and to price stability have increased with the escalation of the conflict in the Middle East. Uncertainty is being 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 2% 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 0.2 percentage points on the previous month (Figure 1.3, left). The increase was driven by energy and core inflation, while food price 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. Risks to year-on-year energy price inflation and headline inflation have turned to the upside.

Year-on-year food price inflation remained at 2.6% amid a continued divergence between unprocessed and processed food prices. Unprocessed food inflation accelerated to 4.6%, partly in reflection of current price rises and adverse weather conditions at the beginning of the year. By contrast, processed food inflation declined to 1.8%, falling for the seventh consecutive month, in reflection of 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 easing of service price inflation. Year-on-year growth in prices of non-energy industrial goods (hereinafter: other goods) strengthened to 0.7% (up from 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. Slovakia registered the highest headline inflation rate for the third consecutive month (4.0%), while Cyprus again recorded the lowest (0.9%).

2Monetary Policy and Financial Markets

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

The Governing Council of the ECB 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 corridor 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 supplies. Since the beginning of February their expectations regarding further reductions in the Fed’s key interest rate have consequently 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 risen following the escalation of the conflict in the Middle East.

US treasury yields declined in February, primarily in response to the release of the January inflation data, which came in below expectations. Similarly German government bond yields also decreased, tracking 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 observation 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 tech firms and the profitability of investments in AI. In early March a reduced appetite for riskier assets further contributed to this downward movement. During this period the S&P 500 fell by 2.1%, while the index comprising the seven largest US tech firms (the Magnificent Seven) declined by 6.1%. The main European index, the STOXX Europe 600, reached an all-time high at the end of February, supported by robust economic data and earnings by European firms, but subsequently fell by 4.3% in early March. The tech-focused Hang Seng index in Hong Kong has lost 3.8% of its value since the start of February.

The US dollar has 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 record high from 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, although the rising US dollar has partly limited further gains. The price of Brent crude has risen by 29.6% since the beginning of February, mainly due to disruptions in energy supplies 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%. Government action was a major driver of the rise in domestic demand, with the government intensifying construction investment last year. This 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 notably: 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 initial implementation of long-term social care. Given this structure of economic growth, imports were significantly stronger than exports. The negative contribution of net 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 breakdown 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 points to GDP growth (Figure 3.1, right). According to monthly statistics, activity strengthened across all segments of construction. 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 continued to be reflected in manufacturing, where value-added declined by 2.6%. Of the major industries, the sole year-on-year increase in activity was recorded by 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 output is gradually spilling over into the labour market (see Section 4).

After a stable January, the economic sentiment deteriorated in February, and according to some indicators domestic demand slowed at the beginning of the year.

The economic sentiment indicator remained unchanged in January compared with December, but in February it declined to its lowest level in 12 months. Confidence weakened across all sectors, 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 of last year. Current and year-on-year declines in assessments of demand in February also contributed to the decline in confidence in private services excluding retail, 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 slowed at the beginning of the year. Real year-on-year growth in the value of card payments and cash withdrawals at ATMs slowed to 2.1% in January and February combined, while the value of fiscally verified invoices actually declined by 2.0% (Figure 3.2, right). Weaker spending is also suggested by January’s fall in turnover in retail trade and trade in motor vehicles.

4Labour Market

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

Following a year of falling 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 attributed partly to the aforementioned retirement effect, as the public sector employs a larger share of older workers,[47] and partly to the need to maintain the provision of public services, particularly in education, social work without accommodation (which is linked to the implementation of long-term social care), and healthcare.

The number of persons in employment was down 0.3% on the previous year on average. The contribution of public sector activities remained positive throughout the year, averaging 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 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. Slovenian nationals made a negative contribution to the year-on-year change in the number of persons in employment (in the amount of –0.5 percentage points), while the contribution by foreign nationals remained positive throughout the year (0.3 percentage points), with their share of the persons in employment averaging 16.0% over the year.[49]

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

Registered unemployment fell 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 declined in the first two months of this year. In February there were 48,096 registered unemployed, down 0.4% on a year earlier, but still 5.9% above last year’s average (Figure 4.1, left). In structural terms, the year-on-year fall was mainly driven by persons aged over 50 and those with upper secondary education, while there was a rise in unemployment among persons aged under 25 and those with the lowest and highest levels of education. Outflows from unemployment over the first two months of the year were down on the same period last year, mainly as a result of a decline in hiring. At the same time a fall in redundancies meant that fewer persons were entering unemployment. The registered unemployment rate stood at 4.8% in December of last year, unchanged from a year earlier, and 0.2 percentage points above last year’s average. The surveyed unemployment rate stood at 4.1% in the final quarter of last year, up 0.6 percentage points on 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 of 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 smaller extraordinary payments, which firms most likely replaced in part with the mandatory Christmas bonus.[50] Higher inflation meant that the real year-on-year decline in the average gross wage was even more pronounced (–3.0%). Growth in the average gross wage averaged 5.9% over the year, down 0.3 percentage points on the previous year. Real growth stood at 3.3%, down almost 1 percentage point on the previous year.

The gap in the year-on-year changes in the average gross wage between the public and private sectors widened further in December. The average gross wage was down 3.9% in year-on-year terms in the private sector, but up 6.1% in the public sector. Wages in the private sector increased by 3.9% on an annual basis, or 1.4% in real terms. Reform of the public sector pay system meant that wage growth was significantly higher in the public sector at 9.4%, or 6.7% in real terms.

The divergence between the two sectors is also confirmed by the national accounts data.[51] Annual 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, but 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 faster growth in imports in the second half of the year, which tracked the strengthening of domestic demand. The terms of trade, calculated as the ratio of export prices to import prices, strengthened over the course of the year, and improved 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 exports of road vehicles to France also declined sharply in the first half of the year. Exports to Germany, Slovenia’s largest trading partner, decreased for the third consecutive year, primarily as a result of falling exports of industrial machinery and road vehicles.[53] In terms of structure, machinery and transport equipment, most notably road vehicles, accounted for the largest share of nominal merchandise exports, followed by chemical products, particularly medical and pharmaceutical products (see Figure 5.1, left). The shares have shifted slightly over the last three years (see Figure 5.1, right): the share accounted for by machinery and transport equipment has decreased somewhat, while the share accounted for by chemical products has increased.

By contrast, the breakdown of nominal imports according to the main product categories remained relatively unchanged over the same period (see Figure 5.1, right). Machinery and transport equipment continued to account for the largest share, followed by chemical products, most notably 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 accounted for by China remains broadly unchanged (around 5%), with the main increases seen in imports of electrical machinery and equipment, road vehicles, metal products, and industrial machinery.

The initial data for this year suggests a further contraction in nominal merchandise exports. According to SURS data, 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 the economic sentiment in key partner countries deteriorated slightly in February, although it remained above last year’s high; these measurements, however, do not yet reflect the escalation of the conflict in the Middle East.[55] Merchandise imports according to SURS data decreased by 5.8% year-on-year in January, in line with the economic sentiment and initial consumption indicators, which point to a slowdown in domestic demand (see Section 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 in imports, the contribution of services trade to real GDP growth was neutral, owing to the slightly 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 partly 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, which reached a record EUR 3.9 billion. Half of this surplus was generated by transport services and travel services, with the surplus in both categories increasing further compared with the previous year (see Figure 5.2, right).

More than half of last year’s services exports consisted of travel services, which increased by 4.6% on the back of a record tourist season, and transport services, which were up 2.6%, although transport exports began to decline towards the end of the year. Daily data for the first 60 days of this year indicates a continued increase in travel services exports, with a year-on-year rise of 8.3% in the number of overnight stays by foreign tourists. The share of total services exports accounted for by insurance services doubled to 5.5% last year, as one of the insurers 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. 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 to EUR 427.5 million. This was mainly the result of a decline in dividend payments on corporate equity holdings, 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, partly in reflection of higher expenditure on various current transfers.

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

6Inflation

Inflation picked up pace in February, primarily due to an effect from last year's measures in connection with electricity prices.

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

Energy prices were up 2.8% in year‑on‑year terms in February, having declined by 2.1% in January. The reversal 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.[61] It is estimated to have raised February’s headline inflation rate by 0.5 percentage points. To a lesser extent the rise in energy prices was also driven by solid fuels, which recorded a second consecutive month of pronounced price rises, and were 16.6% more expensive than in December 2025.

By contrast, food price inflation has been easing over the last few months, the year‑on‑year rate slowing to 4.3% in February, down 0.3 percentage points on January.[62] The slowdown was entirely driven by processed food prices, which have remained practically unchanged since November of last year. Over this period their contribution to food inflation nearly halved, to 1.7 percentage points. Conversely the contribution of unprocessed food prices increased markedly, to 2.5 percentage points, mainly in reflection of higher prices of fruit and vegetables. Conditions along production and supply chains are generally easing, as food commodity prices on global and euro area markets have been falling since the middle of 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 up 4.7% 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 excluding energy and food prices, stood at 2.3% in February, down 0.1 percentage points on 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 in the wake of relatively high current price rises in February of last year. Other goods inflation nevertheless remains supported by domestic cost factors, as evidenced by the divergence between growth in import prices and domestic producer prices (Figure 6.1, right). The divergence is primarily attributable to rising labour costs and their pass-through into consumer prices.

Rising labour costs are also being reflected in service price inflation: the year-on-year rate strengthened to 3.9% in February (up from 3.7% in January), following sharp monthly rises in February.[63] Indeed, the inflation momentum[64] indicator confirms the persistence of service price inflation, which picked up again in recent months after gradually declining last year and signalling fading inflationary pressures. The share of services firms expecting to raise selling prices has been increasing again since November, particularly in rental and leasing activities, services to buildings and landscape activities, warehousing, storage and support activities for transportation, and in accommodation and food service activities (Figure 6.2, left).

Developments in core inflation remain primarily driven by domestic price factors. Growth in the GDP deflator, which measures the rise in prices of domestically produced goods and services, remained at 3.7% in the final quarter of last year. Labour costs continued to be the 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 consolidated general government deficit widened by just over 1 percentage point last year to 2.5% of GDP, and is expected to increase further this year.

According to the cashflow methodology, the consolidated general government deficit amounted to EUR 1,773 million or 2.5% of GDP last year, up significantly from 1.4% of GDP in the previous year (Figure 7.1). The majority of the deficit originated from the state budget (EUR 1,711 million); municipalities halved their deficit to EUR 112 million, while the Health Insurance Institute of Slovenia (ZZZS) ended the year with a surplus. With the deficit projected to increase further this year – despite the expected improvement in economic growth – the fiscal space for countercyclical measures in the event of larger shocks is narrowing.