Summary

Favourable economic developments in Slovenia continued in the third quarter despite heightened geopolitical tensions and higher energy prices. At the same time, robust domestic demand and more expensive energy are adding to inflationary pressures.

The euro area economy remained resilient in the third quarter according to survey indicators. Economic activity continued to strengthen, as indicated by the composite PMI, which reached its highest level since March 2023 in September. Growth in activity was broad-based, and more favourable conditions in services and manufacturing were also reflected in an improvement in business sentiment in September. By contrast, consumer sentiment deteriorated amid renewed price pressures. Headline inflation in the euro area increased to 3.8% in September, owing to both higher energy prices and accelerating food price growth. The latter could already reflect the effects of the exceptionally dry summer. Euro area core inflation, i.e. price growth excluding energy and food, also increased slightly, to 2.5%.

At its September meeting, the ECB Governing Council raised all three key interest rates by 0.25 percentage points amid persistent inflationary pressures. The Council justified its decision by assessing that the war in the Middle East was continuing to generate inflationary pressures, while inflation was expected to remain significantly above the monetary policy target for a prolonged period. The Fed likewise raised its key interest rate by 0.25 percentage points at its September meeting, for the first time this year, citing similar considerations. Given persistently higher energy prices, which could pass through to other price categories, investors expect the ECB and the Fed each to raise their key interest rates by a further 0.25 percentage points by the end of the year.

Developments in financial markets since the beginning of September have been marked by stronger expectations that disruptions to energy supplies from the Middle East will be more prolonged than initially anticipated. As a result, government bond yields increased in numerous economies over the period, with more pronounced rises in countries where risks related to fiscal sustainability emerged. Major equity indices mostly declined over the same period, with political uncertainty in France exerting an additional negative impact in Europe. The price of gold fell from the beginning of September amid a stronger US dollar, while oil prices rose substantially again.

According to the available data, economic conditions in Slovenia remained favourable in the third quarter with economic growth remaining broad-based. Despite sharply heightened geopolitical tensions and the renewed increase in energy prices, manufacturing output has increased this year in most sectors, with some exceptions in energy-intensive industry, where conditions remain challenging. Construction activity remained at high levels in August, although it is expected to moderate as projects related to EU funds and local elections are completed. Favourable year-on-year developments in the services sector continue to be underpinned by private consumption and strong international tourism. Economic sentiment remained relatively solid in September, although concerns about an acceleration in inflation are increasing. Forecasting models currently point to quarter-on-quarter GDP growth of 0.7% in the third quarter.

Real goods exports are estimated to have increased by almost 7% year-on-year in July and August, while real import growth was significantly weaker. Nominal goods export growth was driven primarily by the pharmaceutical and automotive industries, while trade in petroleum and petroleum products remained significant. Goods imports continued to be strongly influenced by energy products, supplies of which also increased from non-EU countries. In services trade, which remains the main driver of the balance of payments surplus, growth was supported primarily by transport services amid increased goods trade. The outlook for exports continues to improve, as the indicators of export orders and economic sentiment in key export partner countries both improved again in September.

Labour market conditions remain relatively stable. The number of persons in employment remains at levels similar to those a year earlier, with employment continuing to decline in predominantly private sector activities and increase in predominantly public sector activities. Registered unemployment was again lower year on year in September and remains close to its historical low. Year-on-year wage growth eased somewhat in July but remained high. In nominal terms, it stood at 7.6%, and at 4.4% in real terms, with growth stronger in the public sector than in the private sector. Robust wage growth continues to support household purchasing power, while also reinforcing domestic price pressures.

Inflation as measured by the HICP has been gradually increasing. In September, it reached 3.7%, mainly reflecting a sharp rise in energy prices, particularly petroleum product prices, driven by heightened geopolitical tensions and reduced refining capacity. These effects have not yet translated into higher food inflation, which remains subdued. However, recent developments in unprocessed food prices, alongside trends in the euro area, point to a gradual strengthening of price pressures. Core inflation, measured excluding energy and food prices, fell to 2.3% in September and, unlike headline inflation, has remained relatively stable in recent months. This suggests that the pass-through of the energy shock to core inflation continues to be limited. Nevertheless, the divergence between almost negligible growth in prices of other goods and elevated services inflation persists, with services inflation driven by increases in holiday package and accommodation prices over the summer months.

The general government deficit increased in the first half of the year, while cash-flow data indicate that its growth came to a halt in the third quarter. Nevertheless, fiscal risks remain elevated. According to government estimates, the deficit is expected to remain below 3% of GDP this year and next year. This year, it is being increased mainly by social transfers, investment and wages. The effects of measures to mitigate high energy prices have so far been moderate. As yields in financial markets rise, the cost of refinancing debt is gradually increasing, which, together with demographic and environmental challenges and the fulfilment of commitments regarding defence expenditure, is creating pressures on public finances. In addition, short-term uncertainty stems from the measures envisaged in the Act on Intervention Measures for the Development of Slovenia and from the announced, but not yet adopted, fiscal consolidation measures aimed at slowing the strong growth in expenditure. Preserving fiscal space is crucial to mitigating any new macroeconomic shocks and the structural challenges facing the economy.

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In this publication, we take a closer look at manufacturing and the structure of new corporate lending in Slovenia and the euro area. Conditions in manufacturing vary considerably across euro area countries, mainly owing to differences in the levels of industrial activity, the energy intensity of production and energy prices. Any further increases in the latter could widen the differences in industrial activity across countries. Higher input costs, including energy costs, increase working capital financing needs. In the euro area, this is reflected in stronger growth in short-term lending, particularly to larger and less risky firms, which are also benefiting from a shift in banks’ loan supply. No such shift in lending has so far been observed in Slovenia. In Slovenia, the recent growth in manufacturing activity has been supported by more favourable productivity developments. However, as our analysis shows, this does not necessarily indicate a broad-based improvement in conditions, but may also reflect the contraction in less productive industries and employment moving more closely in line with production again, following a period of labour hoarding.

1International Environment

Global economic activity continued to strengthen in the third quarter, while the IMF projections point to stronger growth next year.

The global economy remains resilient amid the heightened geopolitical uncertainty and high energy prices. The composite PMI increased to 54.3 points in September, from 53.5 in August, reaching its highest level in the last three years (Figure 1.1). It averaged 53.5 points in the third quarter, compared with 51.9 in the second quarter, confirming a further strengthening of economic activity growth. Growth in September was broad-based, with activity strengthening in both services and manufacturing. Among services, growth was strongest in financial services and somewhat weaker in consumer services.[1] In manufacturing, growth was the highest in the last four years, supported by strong growth in new orders, higher spending on artificial intelligence and defence, and continued inventory accumulation amid uncertainty over prices and supply chains. External demand also strengthened significantly, with new export orders recording their fastest growth in the last five years. At the same time, inflationary pressures and supply chain pressures intensified, as reflected in the GSCPI.

Among the major economies, PMI survey data indicate that activity growth in September was strongest in the United States and India. In the United States, the composite PMI rose to 58.4 points, its highest level in the last five years, while strong growth also continued in India, where the index stood at 55.9 points. In both economies, growth was broad-based, with activity increasing strongly in services and manufacturing. More moderate growth was recorded in China, Japan and the United Kingdom, where the composite PMIs stood at 52.4, 52.3 and 52.0 points respectively.

The IMF’s October projections expect global economic growth of 3.1% this year, with private-sector resilience and strong investment in artificial intelligence mitigating the adverse effects of higher energy prices. Growth is expected to strengthen somewhat to 3.4% next year, as the effects of the energy shock gradually subside. Risks to global economic growth remain tilted to the downside, primarily owing to the possibility of a further escalation of tensions in the Middle East and a potential reversal in expectations regarding the effects of artificial intelligence. Growth in the United States is projected at 2.3% this year, compared with 1.3% in the United Kingdom, 4.5% in China and 0.9% in Russia, while growth in India is expected to reach 7.0%.

Survey indicators suggest that the euro area economy remained resilient in the third quarter, with growth broad-based.

The euro area economy expanded by 0.6% quarter on quarter in the second quarter. Growth was supported primarily by net exports and private consumption, which contributed 0.9 and 0.2 percentage points respectively, while changes in inventories reduced GDP growth by 0.5 percentage points. From the production side, growth was broad-based, driven by both private services and industry.

Economic activity in the euro area continued to strengthen in the third quarter, as indicated by the composite PMI, which increased to 53.1 points in September, from 52.0 in August, reaching its highest level since March 2023 (Figure 1.2, left). Growth in September was broad-based and supported primarily by higher spending on artificial intelligence and defence. Growth in services strengthened noticeably, particularly in information and communication services. Positive developments also continued in manufacturing. Strong growth in new orders and a renewed increase in export orders were accompanied by a further intensification of price pressures.

More favourable conditions in services and manufacturing were also reflected in improved business sentiment in these sectors in September (Figure 1.2, right). Nevertheless, the European Commission’s Economic Sentiment Indicator declined slightly, primarily owing to deteriorating consumer sentiment. The ZEW Economic Sentiment Indicator for the euro area was also somewhat lower in September and October.

According to the ECB’s September projections, euro area will grow at 0.9% this year, 0.1 percentage points higher than in the June projections, mainly on account of an improved short-term outlook for investment, stronger private consumption and a more favourable international environment. Growth is expected to strengthen to 1.4% in 2027, amid a gradual reduction in uncertainty, improving confidence and the normalisation of energy prices. The IMF’s October projections expect growth in the euro area this year at 0.2 percentage points higher than in the ECB projections, and growth next year at 0.2 percentage points lower.

Headline inflation in the euro area rose strongly in September amid further increases in energy prices related to the escalation of tensions in the Middle East.

Year-on-year price growth in the euro area, as measured by the HICP, strengthened by 0.6 percentage points to 3.8% in September (Figure 1.3, left). The increase was again driven mainly by energy prices, while core and food inflation also increased. Energy prices were 18.9% higher year-on-year (14.3% in August), reflecting accelerating global oil prices and continued high refining costs and margins (Figure 1.3, right). Government tax measures were also less extensive. Since the start of the war, their largest dampening effect on headline inflation was recorded in May, at 0.3 percentage points, compared with 0.1 percentage points in September.

Meanwhile, year-on-year food price growth strengthened again after a months-long decline, reaching 1.3%, 0.2 percentage points higher than in August. The reversal was driven solely by unprocessed food prices, which were 4.0% higher year-on-year amid the above-average monthly rate for September. The ongoing increase mainly reflected higher vegetable prices. Developments in the last two months could already reflect the effects of the exceptionally dry summer. By contrast, year-on-year processed food price growth declined again to 0.4%, mainly reflecting the previous moderation in global cocoa prices. The contribution of meat also decreased, while producer prices continue to decline year-on-year.

Core inflation, i.e. inflation measured excluding energy and food prices, increased by 0.1 percentage points to 2.5% in September, solely due to services inflation. At 3.2%, the latter was 0.2 percentage points higher than in the previous month and remains slightly above 3%. The limited movement continues to be accompanied by relatively stable domestic price pressures and ECB indicators also signal no major changes until the end of the first half of next year. Conversely, year-on-year growth in non-energy industrial goods (hereinafter: other goods) prices fell slightly to 1.1%, from 1.2% in August. Nevertheless, it remains higher than before the start of the war in the Middle East, coinciding with stronger pressures along the pricing chain. Amid renewed increases in energy prices, growth in PMI input and output prices in manufacturing and services also accelerated in September.

Headline inflation in Slovenia was 0.1 percentage points lower than in the euro area in September, while core inflation was 0.2 percentage points lower. The range of headline inflation rates among euro area Member States narrowed to 3.7 percentage points. Lithuania recorded the highest headline inflation for the fourth consecutive month, at 6.1%, while Malta registered the lowest, at 2.4%.

2Monetary Policy, Financial Markets and Terms of Financing

2.1Monetary policy and financial markets

In September, the Eurosystem raised the interest rate on the deposit facility to 2.50%, while the Fed raised its policy rate to a range of between 3.75% and 4.00%.

In September, the ECB Governing Council raised all three key ECB interest rates by 0.25 percentage points for the second time this year. The interest rate on the deposit facility, the main refinancing operations and the marginal lending facility were thus increased to 2.50%, 2.65% and 2.90% respectively. The war in the Middle East continues to generate inflationary pressures, and inflation is expected to remain significantly above the target level for a prolonged period. The Governing Council assessed that the ECB remains well placed to navigate the uncertainty caused by the conflict. It will continue to determine the appropriate monetary policy stance on a meeting-by-meeting and data-dependent basis.

At its September meeting, the Fed raised its key policy rate by 0.25 percentage points for the first time this year, to a range of between 3.75% and 4.00%, primarily owing to persistent inflation, which has remained above the 2% target for an extended period. The decision was supported by persistently high energy prices amid tensions in the Middle East, strong investment demand related to artificial intelligence, and core inflation in August, which exceeded expectations. At their recent meetings, the central banks of Australia and Japan also raised their key interest rates by 0.25 percentage points, to 4.60% and 1.25% respectively, while rates remained unchanged in the United Kingdom (3.75%), Switzerland (0%), Canada (2.25%) and Sweden (1.75%).

Since the beginning of September, expectations have strengthened that disruptions to energy supplies as a result of the war in the Middle East will last longer than initially anticipated. This heightens the risks of more persistent inflationary pressures and supports investors’ expectations that central banks will further tighten their monetary policy stance. Current overnight index swap (OIS) rates indicate that financial markets expect the ECB and the Fed each to raise their key policy rates by a further 0.25 percentage points by the end of 2026, which would bring the Eurosystem deposit facility rate to 2.75% and the Fed's key policy rate to a range of between 4.00% and 4.25% (Figure 2.1.1, left). For the following year, market participants expect, with a high degree of probability, two further increases of 0.25 percentage points in the key policy rates of both the ECB and the Fed.

German and US government bond yields have risen since the beginning of September, partly on account of higher energy prices. US equity indices have remained broadly unchanged, while equity prices in Europe have declined.

Amid stronger expectations of a more persistent increase in inflation and a more restrictive monetary policy stance by the ECB and the Fed, yields on short-term German government bonds have risen by 0.18 percentage points since the beginning of September, while those on long-term bonds have increased by 0.13 percentage points (Figure 2.1.1, right). Yields on short-term US government bonds have meanwhile increased by 0.43 percentage points, and those on long-term bonds by 0.39 percentage points. The increase in US government bond yields was more pronounced owing to the unanimous decision by members of the Federal Open Market Committee to raise the key policy rate and growing investor concerns about the long-term fiscal sustainability of the United States. Spreads between yields on euro-denominated bonds with higher credit risk and German government bond yields widened over the period under review amid heightened political risks in Europe. This was driven by delays in the adoption of the budget and general political uncertainty in France, as well as the calling of early elections in Spain.

Major global equity indices have mostly declined since the beginning of September (Figure 2.1.2, left). The STOXX Europe 600, the main European equity index, fell by 1.8%, primarily owing to political uncertainty in France and the downgrade of its sovereign credit rating. The technology-oriented Hong Kong Hang Seng index has lost 6.7% since the beginning of September, reflecting weaker Chinese macroeconomic data and a general deterioration in investor sentiment regarding growth in China’s artificial intelligence sector. By contrast, US equities have remained broadly unchanged, with the main US equity index, the S&P 500, gaining 0.1%, as concerns about high inflation and the sustainability of spending on artificial intelligence infrastructure largely offset the positive impact of stronger-than-expected third-quarter earnings releases by technology companies. An exception was the index of the seven largest US technology companies (the Magnificent Seven), which has gained 5.2% since the beginning of September despite declining in October.

The US dollar appreciated by 3.6% against the euro from the beginning of September, primarily owing to the increase in US government bond yields and expectations of further increases in the Fed's key policy rate. The depreciation of the euro, largely reflecting concerns about France’s fiscal position and political uncertainty in the country, also contributed. The US dollar moved similarly against a basket of major global currencies, and is currently 2.6% higher than at the beginning of September (Figure 2.1.2, right). The price of gold fell by 6.7% from the beginning of September, owing to a stronger US dollar and higher US government bond yields, while the price of Brent crude oil rose by 21.1% amid further disruptions to oil supplies through the Strait of Hormuz.

2.2Credit activity and financing conditions

Credit activity in Slovenia remains stronger than in the euro area, particularly for households, supported also by lower interest rates on household loans.

Annual growth in loans to non-financial corporations (NFCs) in Slovenia eased slightly in August, to 6.2%, but remained above the euro area rate of 4.2% (Figure 2.2.1, left). In Slovenia, growth was driven mainly by long-term loans, which increased by 7.0% year on year, while the stock of short-term loans with maturities of up to one year declined slightly. In the euro area, the pattern was reversed, with growth in short-term loans (7.4%) clearly exceeding that of long-term loans (3.7%). This may reflect stronger corporate working-capital financing needs, potentially related to somewhat higher energy costs than in Slovenia (see Boxes 1.1 and 2.2.1).

Lending to households in Slovenia remains strong, with year-on-year growth of 8.4%. Both housing and consumer loans are contributing to this growth, with annual growth rates exceeding 9% in both segments.

The average interest rate on new loans to NFCs in Slovenia rose to 4.3% in August (from 4.0% in July), while in the euro area it remained unchanged at 3.8% (Figure 2.2.1, right). A slight increase was also observed in housing loan rates, although at 3.2% in Slovenia they remained below the euro area rate of 3.6%. The difference was even more pronounced for consumer loans, where the average interest rate stood at 5.9% in Slovenia compared with 7.9% in the euro area. Despite the tightening of monetary policy, the cost of new household borrowing in Slovenia therefore remains relatively favourable.

3Domestic Economic Activity

Business confidence in the domestic economy remained relatively solid in September, while inflation expectations strengthened again.

The economic confidence indicator remained favourable in September despite sharply heightened tensions in the international environment (Figure 3.1, left). Despite high uncertainty and stronger growth in energy prices, confidence in manufacturing has been relatively high and stable in recent months, with firms reporting growth in output and orders. Amid robust private consumption, supported by wage growth, and continued growth in international tourism, firms in private services remained optimistic, and their assessments of demand were again relatively favourable. The survey assessment of the volume of construction work also remained relatively high, although a decline in new orders points to a moderation in activity in the coming months (Figure 3.1, right). This is also expected owing to the completion of construction projects related to the absorption of funds under the Recovery and Resilience Plan and this year’s local elections. Consumer confidence deteriorated slightly after July, partly as a result of a considerable increase in inflation expectations. These also increased slightly in private services and construction.

Alongside survey indicators, a broad set of activity indicators also points to favourable economic conditions in the third quarter.

Conditions in manufacturing have been favourable this year. Output was up 8.5% year-on-year in August and 3.0% cumulatively over the first eight months. Growth was broad-based, with all technological-intensity groups contributing. Among the larger sectors, the food, automotive and machinery industries, the construction materials industry, and the manufacture of electronic and optical products stood out in particular. Following a weak start to the year, the pharmaceutical industry has also begun to strengthen, while conditions remain challenging in certain segments of energy-intensive sectors (Figure 3.2, left). The increase in output has also been accompanied by a rise in capacity utilisation, which at 83.1% in the third quarter was its highest level since 2023. Despite the improvement in business performance, the survey indicators of competitive position in markets within and outside the EU remain markedly below their levels before the onset of the energy and geopolitical crisis in 2022.

Construction activity also increased year-on-year during the summer months, although a higher base is curbing its growth, while the underlying dynamics have been relatively weak in recent months. The volume of construction work performed in August was 3.6% higher than a year earlier. Growth reached 18.8% cumulatively over the first eight months, with all segments of construction recording increases. Residential construction also posted growth, although supply has long been insufficient to meet market needs, while construction costs and residential property prices continue to rise rapidly.[20] The share of nominal value added in construction in GDP stood at 6.3% over the year to the second quarter of this year, its highest level since 2009. New building permits suggest that demand for construction work has moderated slightly in recent months. Factors constraining further growth in construction are considerable, as firms report significant labour shortages and strong growth in construction costs.

According to the available data, consumption in the domestic market remained robust in the third quarter. The real value of card payments and ATM cash withdrawals was 3.0% higher year-on-year, 0.9 percentage points more than in the second quarter. The increase in the real value of tax-verified invoices was even more encouraging, at 4.6% (Figure 3.2, right). These developments coincide with turnover in services, which was 5.7% higher in July than a year earlier. In year-on-year terms, turnover increased in almost all groups of services, reflecting the combined effects of strong construction activity, improved conditions in manufacturing, a tight labour market, a favourable tourist season and further growth in government consumption. Growth in real estate activities was particularly strong, at 66.1%.[21] Initial data for August point to continued year-on-year growth in retail trade turnover, driven primarily by a strengthening in spending on more durable goods.

4Labour Market

The number of persons in employment remained broadly unchanged from a year earlier.

In August, there were 938,185 persons in employment, almost the same as a year earlier (Figure 4.1, left). Marked differences between private and public sector activities persist. In the former, the year-on-year decline remains largest in manufacturing and trade, while in the latter growth is highest in human health and social work activities, and education. Differences are also evident by employment status. While the number of employees remains lower year on year, the number of self-employed persons is higher.

Employment expectations remain positive, with the exception of trade. They continue to be most favourable in construction, while they have also strengthened somewhat in manufacturing in recent months. According to data from the Employment Service of Slovenia, the number of job vacancies in September was 5.6% higher than a year earlier. Vacancies were most numerous in human health and social work activities, manufacturing, education and construction. Among occupational groups, cleaners and helpers, labourers in elementary occupations, and nursing professionals were the most sought after. Hiring continues to be constrained by labour shortages, and firms are therefore filling gaps in the labour market primarily by employing foreign nationals. Their number among persons in employment[25] was 3.4% higher year on year in August, while their share reached a new high of 16.7%.

Registered unemployment declined further in September and thus remains at historically low levels.

At the end of September, there were 42,439 registered unemployed persons, 3.4% fewer than in the same period last year and only 0.5% more than at the historical low recorded in June this year (Figure 4.1, left). Among the various groups of unemployed persons, the year-on-year decline in September was particularly pronounced among those aged over 50 and persons with no education or with completed primary education. In the first nine months of the year, the number of exits from the unemployment register was higher than a year earlier, but mainly for reasons not involving employment, such as non-compliance with obligations, transition to inactivity and voluntary deregistration. Among newly registered unemployed persons, there were fewer redundant workers and fewer persons whose fixed-term employment had ended. Unemployment rates remain low: the registered unemployment rate stood at 4.4% in July, while the ILO survey unemployment rate was 3.8% in the second quarter.

Year-on-year wage growth eased somewhat in July, while the difference in growth between the public and private sectors widened.

Nominal year-on-year growth in the average gross wage stood at 7.6% in July, 0.7 percentage points less than in June (Figure 4.1, right). Compared with the previous month, wage growth was lower in both sectors, but remained higher in the public sector. There, it stood at 8.4%, supported by the continued implementation of the public sector pay system reform, including the third increase in basic salaries, which had already taken effect in June. In the private sector, wage growth stood at 7.0% and continued to be supported by the relatively tight labour market, shortages of suitable staff and the increase in the minimum wage at the beginning of the year. In the first seven months of the year, the average gross wage was 7.3% higher year on year, with growth amounting to 7.2% in the private sector and 7.1% in the public sector. In our assessment, the slightly higher growth in aggregate wages relative to both sectors also reflected a change in the structure of employment in favour of the public sector, which is characterised by a higher average wage level. Despite still elevated inflation, real wage growth remains relatively high. In July, the average gross wage was 4.4% higher in real terms year on year, continuing to support household purchasing power, while also reinforcing domestic cost and demand-side price pressures, particularly in services (see Chapter 6).

5Current Account

The goods trade balance improved year-on-year despite a deterioration in the terms of trade.

Goods exports increased by 10.0% year-on-year in July and August (Figure 5.1, left), while, based on our estimates, real goods exports increased by 6.7%.[26] Nominal goods export growth was driven primarily by the pharmaceutical and automotive industries, as well as by the re-export of petroleum and petroleum products, which together accounted for half of total growth. Exports of materials such as iron, steel and non-ferrous metals also made a smaller contribution, while import and export prices in the manufacture of basic metals increased sharply year-on-year. By trading partner, growth was based primarily on exports to EU countries, in particular Germany, Hungary and Croatia. In the latter, energy products accounted for the bulk of export growth.

Goods imports increased by 9.8% year-on-year in July and August, while, based on our estimates, real goods imports increased only by 1.4%.[27] The difference between nominal and real growth can partly be explained by the strong impact of energy products. Imports of these products increased by 32.1% in nominal terms but declined by 5.9% in real terms.[28] In addition to energy products, imports of pharmaceutical products and electrical machinery also contributed significantly to the increase in imports. Imports from non-EU countries increased at an above-average rate, driven primarily by imports of petroleum and petroleum products from the United States. Excluding energy products, nominal import growth stood at 6.9% year-on-year, with Germany and China making the largest contributions.

The goods trade balance amounted to EUR 102 million, which is EUR 24 million more than in the same period last year, while export coverage of imports stood at 101.4%. The surplus was recorded despite a year-on-year deterioration in the terms of trade of 4.8%, which was more pronounced than in the euro area (Figure 5.1, right). Since the outbreak of the war in the Middle East, Slovenia has differed from the euro area primarily in terms of slower year-on-year growth in export prices. Price expectations of industrial firms in September also do not point to an improvement in Slovenia’s relative terms of trade. In the euro area, particularly among Slovenia’s most important import partners, these expectations increased, while in Slovenia they remained broadly unchanged.

The outlook for exports points to continued growth, as manufacturing firms’ assessments of export orders improved in September to their highest level since 2022. Assessments of competitiveness in foreign markets in this sector remained broadly unchanged in the third quarter, while economic sentiment in key export markets returned to its level at the beginning of the year.[29]

Services trade was driven primarily by transport services.

With a surplus of EUR 903 million, services trade remained the main driver of the balance of payments surplus in July and August. Nominal services exports increased by 2.7% year-on-year, mainly on account of growth in exports of transport services, particularly road freight transport, which rose by 11.9% amid an expansion in goods trade (Figure 5.2, left). The contribution of travel was modest, as travel exports increased by only 1.7% year-on-year, despite an 8.8% increase in overnight stays by foreign tourists. The number of overnight stays nevertheless continues to increase strongly, rising by 14.1% year-on-year in September and early October. Growth in services exports was dampened by a sharp year-on-year decline in insurance services exports, which also affected total services exports to Italy. Services exports increased most to non-EU countries, particularly Switzerland and the United Kingdom. In the 12 months to August, transport services continued to account for the largest share of the services trade surplus (Figure 5.2, right).

Services imports were 4.5% higher year-on-year in July and August. Growth was supported by transport services, imports of which increased by 27.1%, particularly owing to maritime and road freight transport. By partner, imports from Ireland, mainly of business services, made the largest contribution to growth. Other business services, particularly advertising and market research, also contributed significantly to overall import growth, while lower imports of insurance services slightly dampened overall year-on-year growth in services imports.

The primary income deficit amounted to EUR 173 million in July and August, which is EUR 113 million less than a year earlier. The decrease was mainly due to higher net receipts of dividends and branch profits by non-financial corporations. The secondary income deficit amounted to EUR 166 million, which is EUR 59 million more than last year. The increase was primarily attributable to a larger general government deficit in international cooperation with EU institutions, excluding the ECB, and in other transactions with the EU.

The 12-month current account surplus declined year-on-year.

The current account surplus reached EUR 2.7 billion, or approximately 3.7% of GDP, in the 12 months to August, which is EUR 484 million less than in the same period last year.[30] The largest contribution came from the services trade balance, which increased slightly year-on-year to EUR 4.3 billion, close to its historical high. Despite the surplus recorded in July and August, the goods trade balance declined by EUR 917 million year-on-year, recording a deficit of EUR 616 million. The primary income deficit narrowed by EUR 243 million, mainly due to higher net reinvested earnings and dividends of non-financial corporations. By contrast, the secondary income deficit increased slightly to EUR 744 million, mainly due to higher payments to the EU budget.

6Inflation

Headline inflation strengthened again in September, mainly owing to petroleum product prices.

HICP inflation rose to 3.7% in September, from 3.4% in August (Figure 6.1, left). Energy prices, which have remained elevated since April following the outbreak of the war in the Middle East, continued to make a significant contribution to inflation. They were up 18.3% year-on-year in September, with the increase driven primarily by higher petroleum product prices.[31] These contributed 1.7 percentage points to headline inflation, the largest contribution since September 2022. Wholesale electricity and gas prices have also been rising in recent months, but have not yet been passed through to consumer prices (Figure 6.1, right).

High energy inflation has not yet been reflected in food prices too. Year-on-year food inflation remained subdued for the third consecutive month, standing at 0.6% in September. Excluding alcohol and tobacco, food prices were even lower year-on-year, in September by 0.8%, with a pronounced decline in dairy product prices. This is consistent with developments in producer prices in European and domestic markets, where meat product prices have also been falling. However, the decline in meat prices has not yet been reflected in consumer prices, which have edged up slightly since the beginning of the year. Meanwhile, unprocessed food prices rose markedly month-on-month, with vegetable prices increasing considerably more than typical for this time of the year. Although year-on-year food price growth remains subdued, its inflationary momentum has strengthened somewhat in recent months.[32] Together with the effects of an exceptionally dry summer, this points to mounting price pressures.

Core inflation remained relatively unchanged, with a limited impact of the energy shock so far.

Core inflation, i.e. inflation excluding energy and food prices, declined to 2.3% in September, from 2.5% in August. Unlike headline inflation, it has remained relatively stable in recent months, indicating that the pass-through of the energy shock to core inflation has so far remained limited. Core inflation thus continued to be driven predominantly by services prices, while other goods inflation remained negligible at 0.1%, mainly reflecting falling car prices. By contrast, services inflation remained elevated at 4.0% in September and, amid continued growth in international tourism, was largely driven by the prices of package holidays and accommodation (see Box 6.1). As a result, domestic services price growth has been exceeding the euro area rate by almost one percentage point since the beginning of the year. This is partly attributable to comparatively higher real wage growth, which, at the same time, supports households’ purchasing power and sustains the level of demand.

7Fiscal Position

The general government deficit increased further in the first half of the year, despite strong revenue growth, owing to a marked rise in social transfers, investment and wages.

The general government deficit amounted to EUR 1.4 billion, or 3.9% of GDP, in the first half of the year, up from EUR 1.1 billion, or 3.2% of GDP, in the same period last year.[33] Compared with the end of last year, when the deficit over the preceding 12 months remained at 2.5% of GDP even after the revision, it had increased to 2.9% of GDP by the end of June 2026. With interest expenditure accounting for a similar share of GDP, at around 1.25%, the primary deficit also increased.

General government revenue was up by EUR 1.4 billion, or 9.1% year-on-year, in the first half of the year. The increase was driven primarily by net social contributions, reflecting conditions in the labour market that were favourable for public finances and the introduction of the long-term care contribution in July 2025 (Figure 7.1, left). The latter contributed around 5.6 percentage points to their growth of almost 13%, while growth in net social contributions excluding this effect will be considerably more moderate in the remainder of the year. Growth in indirect taxes strengthened to 7.3%, mainly on account of strong VAT growth, despite energy-related measures that are reducing revenue from excise duties and the environmental tax on CO2 emissions.[34] VAT revenue was up 12.3% year-on-year, reflecting strong growth in household consumption and, according to the Ministry of Finance, more effective controls and new forms of digital data reporting via FURS systems. Capital transfers also made a more notable contribution to revenue growth, which can be associated with the finalisation of the Recovery and Resilience Facility (RRF).

General government expenditure increased even more, by EUR 1.8 billion, or 10.6%. Social benefits, gross fixed capital formation and compensation of employees made the largest contributions to expenditure growth (Figure 7.1, right). Within social benefits, social transfers in kind increased by 25.7%, reflecting the implementation of long-term care entitlements. Pension payments were up 7.2% year-on-year in the first half of the year, with growth through August similarly high. Pensions were uprated by 5.2% this year, while the number of pension recipients increased by around 1%. General government gross fixed capital formation has been increasing particularly strongly year-on-year since the final quarter of last year. It was up 23.1% in the first half of this year, mainly owing to the finalisation of projects under the RRF, several other large projects, including the second track of the Divača–Koper railway line, and the electoral cycle. Growth in compensation of employees was more moderate than last year, but still stood at 9.0%, driven primarily by the wage reform, promotions and the 0.9% inflation adjustment in April.

Available cash-flow data indicate that the increase in the deficit came to a halt in the third quarter.

The consolidated general government deficit was EUR 320 million higher year-on-year in the first half of the year.[35] According to the available data, the balance most likely improved in the third quarter. Taken together, the deficit in July and August was EUR 132 million lower than a year earlier.[36] The state budget balance improved even more over these two months, by around EUR 220 million, while the ZZZS balance deteriorated by around EUR 90 million, mainly on account of lower transfers from the state budget. According to daily data, the state budget balance was broadly balanced in September, but was nevertheless around EUR 110 million less favourable than in the same month last year. September data for the remaining public finance accounts are not yet available.

In the third quarter, growth in revenue from taxes and contributions remained at around 10%. As the effect of the introduction of the long-term care contribution in the middle of last year gradually faded, growth was driven primarily by strong VAT receipts. Amid continued growth in expenditure on transfers to individuals and households, and on wages and investment, expenditure growth in the third quarter was moderated mainly by slower growth in expenditure on goods and services and interest payments.

This year and next, the government plans for the deficit to remain below 3% of GDP, while the government debt-to-GDP ratio will continue to decline gradually throughout the period.

According to the latest government estimates in the Draft Budgetary Plan, the general government deficit is expected to amount to 2.9% of GDP this year, which would be higher than last year (2.5% of GDP). The general government deficit is also expected to remain high in 2027, at 2.5% of GDP.

At mid-year, general government debt stood at EUR 47.7 billion, or 64.7% of GDP, EUR 1.4 billion more than at the end of last year. Nevertheless, the general government debt-to-GDP ratio continues to decline owing to nominal GDP growth. According to the government’s projections, it is expected to stand at 64.6% of GDP at the end of this year and to decline to 64.1% of GDP next year. This is expected to be driven primarily by GDP growth and inflation.

Rising market yields will increase debt financing costs, adding to the existing risks to public finances.

Amid rising market yields (see also Section 2.1), the implicit interest rate on general government debt has increased. It stood at 1.9% at the end of last year and rose to 2.0% at mid-year. The Ministry of Finance estimates interest expenditure at 1.3% of GDP this year. Interest expenditure will increase in the coming years as debt issued during the period of low interest rates is refinanced. By 2031, debt issued at coupon rates of around 1.0% will be maturing (Figure 7.2). The refinancing of the principal on maturing bonds will average around EUR 3 billion per year over this period. If the principal were refinanced at an interest rate of 4%, corresponding to the yield on the ten-year government bond in early October, interest expenditure would increase by 0.1% of GDP each year. In addition to the interest rate differential in debt refinancing, the level of interest expenditure will also be affected by the volume of borrowing resulting from deficits in the coming years.[37]

Fiscal risks remain pronounced. In addition to higher borrowing costs, other risks stemming from the domestic and external environment also remain present. Key risks from the global environment currently include measures to mitigate the effects of high energy prices and pressures to increase defence expenditure. In the domestic environment, demographic factors, alongside addressing environmental challenges, are the most significant sources of long-term pressure on public finances. In addition, the measures envisaged under the Act on Intervention Measures for the Development of Slovenia and the announced, but not yet adopted, fiscal consolidation measures aimed at slowing the strong growth in expenditure are sources of short-term uncertainty.[38]

In an uncertain international environment, ensuring sound public finances and compliance with fiscal rules are particularly important, as they create better conditions for maintaining price stability and provide fiscal space to mitigate potential new macroeconomic shocks.

8Statistical Appendix

9List of Abbreviations