The aim of the Savings and Investments Union is to create better financial opportunities for EU citizens, and to strengthen the capacities of the financial system.[3]

In March 2025 the European Commission adopted a strategy for creating a Savings and Investment Union (hereinafter: SIU) with the aim of fostering economic competitiveness in the EU and the wealth of its citizens.

The initiative augments the framework of action plans for creating the capital markets union, and is working in parallel to develop the banking union. By expanding opportunities for EU citizens to access capital markets, making improvements to financing for firms, and fostering wealth creation for citizens, economic growth and competitiveness in the EU, it also aims to channel savings into productive investments. It will make it easier for EU citizens to create wealth, while the opportunities for greater financial security during retirement will be improved. European firms will find it easier to attract private capital, which will improve the conditions for growth, innovation and job creation. At the same time the EU will find it easier to meet its strategic objectives in the areas of the green and digital transitions, innovation, and defence, which is estimated to require annual investment of between EUR 750 billion and EUR 800 billion by 2030 according to the Draghi report on EU competitiveness. By developing and linking European capital markets, the SIU can help to meet these investment targets.

The creation of the SIU would mainly help productivity via the more efficient distribution of capital, economies of scale and additional investment, and better connections between capital markets in the EU. This would meet the conditions for activating (private) financing that is cheaper, diversified, cross-border and easier to access. The SIU strategy encompasses measures in four areas: 1) encouraging retail participation in capital markets and developing the supplementary pension sector; 2) investing in the capital market; 3) reducing the fragmentation of capital markets; and 4) supervision.

The strategy envisages various measures for larger and more efficient capital flows, which relate to: 1) savings and investment accounts and products, 2) financial literacy, 3) retail investors’ access to the right financial products that allow them to participate in funding the EU’s priorities, 4) promoting securitisation and investment in shares by institutional investors, 5) removing differences in national tax procedures, 6) simplifying rules and reducing the burden for listing on the exchange, 7) establishing a channel for reporting on barriers to links between financial markets,[4] 8) reviewing the rules on central securities depositories, financial collateral and settlement, and on trading market structure, with the aim of further removing barriers to cross-border activity, and 9) strengthening supervisory harmonization tools, making it more effective in achieving supervisory convergence of European capital markets.

An important aspect of increasing productivity is financing innovative SMEs, which is thought to require most of the funding estimated in the Draghi report. Bank financing can be unsuitable or too expensive for firms of this kind, as they face higher risks and have fewer material assets to use as collateral. In consequence fast-growing European firms of this kind often seek venture capital outside the EU.

To make it easier to channel financial assets to innovative firms, the SIU proposes that the European Commission should support the European Investment Fund, which is already active in the venture capital market, in the establishment of the European Tech Champions Initiative (ETCI) 2.0. This should upgrade the existing initiative, which focuses on investing financial resources in major venture capital funds that finance the growth of European tech champions. As part of the implementation of the strategy, the European Commission will review and update the EuVECA Regulation. The aim of any changes to the aforementioned regulation is to make the EuVECA[5] brand even more suited to attracting additional capital.

The European Commission will publish its review of progress in the implementation of the strategy in the second quarter of 2027.

The average nowcast for quarterly GDP growth in the third quarter stands at 0.4%, based on a relatively limited data set.

The current nowcast for quarterly GDP growth in the third quarter is 0.4% (see Figure 3.1.1, left). In addition to the autonomous model dynamics and the favourable quarterly growth recorded in the second quarter, the nowcast also reflects the recent improvement in the economic sentiment during the first two months of the third quarter. In both months, the main drivers of this improvement were the manufacturing confidence indicators. By contrast, confidence in services, retail, and construction remained broadly unchanged compared with the previous quarter, while consumer confidence declined slightly.

A more significant adjustment to the quarterly growth nowcast is expected in September, following the release of July data for key monthly indicators of economic activity, including industrial production, the value of construction put in place, and developments in services and retail sectors.

The limited set of high-frequency indicators available for the third quarter contributes to the high level of uncertainty surrounding the current nowcast. The nowcast distribution chart (see Figure 3.1.1, right), which shows the range between the 25th and 75th percentiles, currently spans from –1.1% to 1.1%.

Figure 3.1.1: Nowcast for economic growth

Sources: SURS, Banka Slovenije calculations

Note: The left chart illustrates the nowcasts for quarterly GDP growth. The gold area represents the interval between the 25th and 75th percentiles, while the green area represents the interval between the lowest and highest forecasts. The gold line represents the average nowcast for GDP growth in the third quarter of 2025. The right chart illustrates the distribution of the nowcasts for quarterly GDP growth in the third quarter of 2025. The vertical gold line represents the median, and the red line the mean. The relative frequency represents the share of the total set of models yielding a particular growth nowcast. Nowcast date: 27 August 2025.

The initial estimate of annual GDP growth in 2024 was 0.1 percentage points higher than the estimates based on quarterly figures.

On 29 August 2025 the SURS published its initial annual estimate of the national accounts for 2024. Compared with the previous estimate based on the quarterly data, last year’s GDP growth was revised upwards by 0.1 percentage points to 1.7%. The revision also saw the SURS raise its figure for GDP growth in 2023 by 0.3 percentage points to 2.4%.

The most notable changes to last year’s figures on the expenditure side were in private consumption, whose growth was revised upwards by 2.2 percentage points to 3.8%. The decline in gross fixed capital formation was also reduced sharply, from 3.7% to 0.3%. In line with this revision, growth in imports was revised upwards by 0.4 percentage points to 4.3%. Growth in exports is lower than suggested by the quarterly figures, at 2.3%. A change was also made to inventories, which reduced last year’s GDP growth by 0.2 percentage points (see Figure 3.2.1, left).

On the production side last year’s growth in value-added was raised from 1.7% to 1.8% once firms’ closing accounts have been taken into account. The new figures show a more favourable situation in industry, and a sharper decline in value-added in construction. Value-added growth in private services was lowered to 1.2%, while in public services it was raised to 1.8% (see Figure 3.2.1, right).

Figure 3.2.1: Changes in growth in real GDP components in 2024

Source: SURS

The quarterly figures reconciled with the initial annual estimate of the national accounts for 2024 will be released by the SURS on 30 September, and so it is not yet possible to calculate the new carry-over effect from last year. It will be presented in the October issue of this publication.

The structure of economic growth in Slovenia has changed significantly over the past three decades. Today, the economy is characterised by a tight labour market, relatively subdued private investment growth, and weak gains in labour productivity.

GDP is the most widely used measure of economic activity. This box explains GDP growth through the theoretical concept of the production function, which decomposes economic activity into the contributions of the production factors: labour, capital, and total factor productivity. The latter is generally understood as technological progress or advances in technology.[10]

The decomposition of average per capita GDP growth shows that the structure of economic growth in Slovenia has changed significantly over the past three decades.[11] Broadly, two distinct periods can be identified, each characterised by different growth drivers (see Figure 3.3.1). The first period (1996 to 2008), marked by favourable economic trends and gradual convergence with more advanced European economies, lasted until the outbreak of the global financial crisis and subsequently the sovereign debt crisis. During this phase, economic growth was driven primarily by total factor productivity, with smaller contributions from capital and labour growth. By contrast, the second period (2013 to 2024) has been characterised by a much smaller contribution from total factor productivity and investment activity, with economic growth relying largely on employment growth.

Given the structure of GDP growth over the past decade, he tight labour market is likely to pose a considerable challenge to the Slovenian economy in the future, particularly amid unfavourable demographic trends.[12] A key response will be the restructuring of the economy, in which investment will play a critical role, both directly by boosting labour productivity and indirectly by strengthening total factor productivity. Another major challenge is the sluggish business investment activity observed over the past decade (for a more detailed analysis of investment trends, see Boxes 3.5, 3.6, and 7.1. Business investment policies became cautious following the crisis period of 2008–2013, resulting in a significant slowdown in investment growth. The current economic structure is also accompanied by low labour productivity growth (see Figure 3.3.2), which slows the convergence toward average real labour productivity in the euro area. A more detailed empirical analysis of the factors driving labour productivity growth is provided in Box 3.4.

Figure 3.3.1: Decomposition of growth in GDP per capita

Sources: SURS, Eurostat, Banka Slovenije calculations

Figure 3.3.2: Alternative decomposition of growth in GDP per capita

Sources: SURS, Eurostat, Europop, Banka Slovenije calculations

Note: The labour force participation rate is defined as the ratio of the active population (persons in employment plus unemployed people actively seeking work) to the working age population.

Developments in labour productivity growth depend on cyclical factors related to capital deepening, and long-term trends related to the industrial intensity of the economy, growth in innovation, and the adoption of new technologies.

Labour productivity growth in Slovenia has displayed a trend decline, calling into question the sustainability and viability of domestic growth potential. While labour productivity growth had averaged 3.2% before the global financial crisis, it halved after the crisis, and declined further after the pandemic, reaching 1.5%. The aim of this box is to contribute to an understanding of the factors behind the labour productivity growth, and their expected influence in the future.

The starting point for examining factors in labour productivity growth is provided by the standard neoclassical output function, according to which output per unit of labour (henceforth referred to as labour productivity) is determined as the product of capital intensity and total factor productivity, or the efficiency of the utilisation of production factors:

The decomposition of labour productivity growth in Slovenia on the basis of the above equation shows that its trend decline has been driven by a slowdown in capital deepening, and by a more volatile and less robust contribution of the total factor productivity.[13] This kind of mechanical decomposition, however, is based on categories that are not directly observable, and it therefore does not offer detailed insight into individual factors of labour productivity growth. With the aim of providing up-to-date monitoring of the productivity of the Slovenian economy, this box seeks to establish an empirical link between developments in productivity growth and selected cyclical and structural indicators relating to the deepening of the capital and technological intensity of the production process.

Based on the literature, it can be assumed that the deepening of capital intensity is closely correlated with cyclical factors defining investment growth and user cost of capital, e.g. relative prices of intermediate goods and borrowing costs. Conversely, growth in total factor productivity is to a greater extent defined by factors facilitating growth in innovation and the adoption of new technologies in the production process, e.g. the functioning of institutions, the breakdown of the labour force in terms of qualifications and age, the openness of the economy, the sectoral allocation of production factors, and digitalisation.[14] Here it can be assumed that the correlation between labour productivity growth and cyclical factors related to capital deepening is two-way ­– e. g. the expectation is that investment growth raises but is also conditioned by growth in labour productivity. On contrary, the correlation with long-term structural factors is to a greater extent one-way – e. g. the age structure of the labour force has an impact on productivity growth, while productivity alone does not affect developments in demographic factors.

Accordingly, this box empirically analyses factors behind labour productivity growth by means of a Bayesian vector autoregression model with exogenous variables, i.e. a BVARX model:

where the vector of endogenous variables in the given order consists of year-on-year growth in aggregate investment, year-on-year growth in labour productivity, year-on-year growth in the investment deflator, and the interest rate on loans to non-financial corporations. The vector of exogenous variables consists of a constant, the indicator of the openness of the economy defined as the ratio of aggregate real foreign trade to real GDP, the labour force ageing indicator, expressed as the share of the persons in employment accounted for by those aged 50 and over, and the indicator of the industrial intensity of the economy defined as the share of aggregate value-added accounted for by industry.[15]

The choice of factors examined by the model is supported by the empirical literature (see note 14). This relate investment growth with better technical intensity of labour, and operating costs with the ability to effectively the plan and optimise production and investment activity. Among the long-term factors, the trade openness indicator is correlated with the transfer of knowledge and incentives for innovation, the demographic breakdown of the labour force with the ability to introduce innovations into the production process, and industrial intensity with the efficiency of the sectoral allocation of labour, where it is assumed that sectors in industry on average display higher rates of productivity growth on average than other sectors.

The model has been estimated on the basis of the period between the first quarter of 2003 and the first quarter of 2025, with two lags in the endogenous variables.[16]

The empirical estimates confirm the strong relation between the exogenous investment shocks and labour productivity growth. Among the long-term exogenous variables, the most notable impact on labour productivity growth comes from the industrial intensity of the economy.

Figure 3.4.1 illustrates the impulse responses of labour productivity growth to structural shocks – associated with endogenous variables and identified by means of a recursive method – and the responses to changes in long-term exogenous variables. The impulse responses confirm that labour productivity growth is empirically dependent most markedly on investment growth. The pass-through of unexpectedly higher investment growth into productivity growth is approximately 30%, where the impact persists for approximately one year after the initial shock. In line with the results found in the literature, there is also an intuitive negative median response in labour productivity growth to an unexpected shock to investment deflator, indicating unexpected rise in intermediate prices and user cost of capital. Conversely, the estimated empirical impact of an unexpected rise in financing costs is profoundly uncertain, and is impossible to interpret. Of the long-term exogenous variables, the most pronounced impact on labour productivity growth comes from the industrial intensity of economic activity, where a rise of 1 percentage point in the share of aggregate value-added accounted for by industry corresponds to an average rise of 0.5 percentage points in productivity growth in the first year of response. An ageing labour force by contrast is indicative of a decline in labour productivity, where the estimated empirical relation remains quite uncertain according to the posterior distribution of the responses. It is also impossible to confirm an empirical connection between the trade openness of the economy and productivity growth on the basis of the model in question.

Given the identified structural shocks and the estimated impact of the exogenous variables, it is also possible to examine the impact of individual factors in past periods by means of the historical decomposition of the labour productivity growth illustrated in Figure 3.4.2. According to the estimates and the sample in question, the stochastic component related to the identified structural shocks had a relatively limited impact on developments in labour productivity growth compared with the deterministic component related to exogenous variables and the initial conditions. There is nevertheless a discernible shift from the positive contribution of the shock in investment growth in the period before the global financial crisis to the negative contribution after it. The contribution made by investment turned positive again in the period after the pandemic, particularly in 2022 and 2023, but was more than outweighed by the negative cost shocks to capital deepening, which related to higher prices of capital goods and to higher borrowing costs. In addition to the aforementioned adverse cyclical factors, recently the reduced contribution by exogenous variables has also prevented higher productivity growth. To a significant extent this relates to the trend decline in the share of value-added accounted for by industry, i.e. deindustrialisation, and redirection to sectors with relatively lower productivity growth, such as services and construction. The reasons for lower productivity growth in these sectors are related both to measurement issues and substance, and relate to the different required labour intensity and possibility of introducing technologies and automation to the work process.

Figure 3.4.2: Model decomposition of labour productivity growth

Sources: SURS, Banka Slovenije, Banka Slovenije calculations

Note: The bars illustrate the average cumulative contributions by identified structural shocks in investment growth, labour productivity growth, growth in the investment deflator, and interest rates on loans to non-financial corporations, and the contribution made to labour productivity growth by exogenous variables.

A sustained increase of 1 percentage point in labour productivity growth requires a rise of 1.3 percentage points in investment growth relative to the unconditional model forecast.

The estimated empirical model also allows for analysis of forecasts of factors conditional on different paths of productivity growth.[17] This allows to analyse the rise in investment growth needed to achieve the desired sustained labour productivity growth. Figure 3.4.3 illustrates the difference between the forecast of investment growth, consistent with a 1 percentage point increase in labour productivity growth, relative to its unconditional path. Based on the model, a persistent 1 percentage point increase in productivity growth requires an increase investment growth by approximately 1.3 percentage points on average over a period of three years. Translated to the post-pandemic period, i.e. 2020 to 2025, according to this estimates, the investment growth would need to average 2.3% instead of 1.6% to sustain labour productivity growth at its long-term average of 2.0% instead of 1.4%.

Figure 3.4.3: Conditional forecast of investment growth consistent with sustained increase of 1 percentage point in labour productivity growth

Source: Banka Slovenije calculations

Note: The figure illustrates the difference between the conditional and unconditional model forecast of investment growth in line with a rise of 1 percentage point in labour productivity growth relative to the unconditional forecast. The dashed lines represent the 16th and 84th percentiles of the forecast distribution.

The pace of investment in Slovenia is too slow to achieve more substantial economic convergence with the EU average.

Slovenia has been facing relatively weak investment activity since 2009. These developments are a reflection of the series of crises that followed the bursting of the investment bubble in late 2008 after the overheating of the economy. The global economic and financial crisis, the euro area debt crisis, the difficulties of the domestic banking system and the long-term deleveraging of the public sector and the private sector, the pandemic crisis, and most recently the energy and geopolitical crisis have caused a long-term deterioration in the environment for investing, and no sign of a stronger and sustained recovery in investment at the level of the economy was evident either via the ownership changes in the economy in favour of foreign investors[18] or via the utilisation of EU funds. In recent years, investing in Slovenia has also been hit by weak economic growth in the EU and the difficulties in German industry.[19]

Gross fixed capital formation in Slovenia increased by 77.4% between the first quarter of 1996 and the first quarter of 2025, merely just over 7 percentage points more than the EU average. In comparison, there was a notably stronger increase in investment in machinery and equipment, which was related in part to higher importance of industry and expansion of the logistics sector, while there was a large shortfall in construction investment and investment in intellectual property products (see Figure 3.5.1).[20]

Viewed across the entire observation period, the stronger aggregate investment compared with the EU average is attributable to development before 2007. Gross fixed capital formation increased by 80.5% between the first quarter of 1996 and the second quarter of 2006[21] in Slovenia, but by half of this in the EU overall. Outperformance of the EU average was evident in all three main investment categories, and was strongest in investment in machinery and equipment (see Figure 3.5.1).

Following the bursting of the investment bubble in 2008, the conditions for investing in Slovenia underwent a sustained deterioration, and the pace of investment began to fall behind the EU average. Gross fixed capital formation in the first quarter of this year was down 1.8% on the second quarter of 2006 in Slovenia, while in the EU overall it was up 20.2%. The decline is attributable to a fall in construction investment, although shortfalls in growth are also evident in machinery and equipment, and even more evidently in intellectual property products. In recent times, investment has stalled since the end of 2023. Investment in the first quarter of this year was down 6.8% on the third quarter of 2023, compared with an increase of 1% in the EU overall (see Figure 3.5.1).[22]

Figure 3.5.1: Long-term overview of investment developments

Sources: SURS, Eurostat, Banka Slovenije calculations. Latest data: Q1 2025

In terms of the ratio of investment to GDP, Slovenia has been below the EU average for approximately 14 years, with a particularly notable shortfall in residential construction.

Investment measured as a ratio to GDP has not evidently recovered in Slovenia since the turmoil of late 2008. This figure has averaged 19.7% over the last 14 years, 1.2 percentage points less than in the EU overall, even though an economy undergoing catch-up should typically be outperforming the more advanced average. The shortfall is mostly the result of the lower figure for construction investment, where the shortfall in residential construction is of particular concern. As a ratio to GDP, it has been behind the EU average for the entire period, but the shortfall has widened even further over the last 14 years.[23] The figure for investment in intellectual property products is also lower, and the shortfall on the EU average is gradually widening. Only in investment in machinery and equipment has Slovenia continued to outperform the EU average (see Figure 3.5.2).

The ratio of gross fixed capital formation to GDP in the first quarter of this year stood at 19.3% in Slovenia, down 2.3 percentage points on the EU average. The ratio of construction investment to GDP stood at 9.1%, 1.7 percentage points behind the EU average, where the shortfall is entirely attributable to the less intensive housing investment, whose ratio to GDP of 2.5% was 2.8 percentage points less than the EU average. The shortfall in the figure for investment in intellectual property products (2.9%) stood at 1.6 percentage points. Investment in machinery and equipment amounted to 7.3% of GDP, 1.1. percentage points more than the EU average, although this outperformance was significantly larger in the period before the overheating, at almost 3 percentage points (see Figure 3.5.2).

Figure 3.5.2: Investment intensity

Sources: SURS, Eurostat, Banka Slovenije calculations. Latest data: Q1 2025

The huge uncertainty, the loss of competitiveness, weak demand, and low capacity utilisation are not generating an economic environment suitable for stronger investment.

The changes in the economic environment since 2008 are best described by the survey indicator of uncertainty in the economy, which the SURS publishes for manufacturing. The difference between the two observation periods is evident. The share of manufacturing firms citing uncertainty as one of their limiting factors stood at 37% in the third quarter of this year, 25.1 percentage points higher than its average between 1996 and 2008, and 7.7 percentage points higher than its average between 2009 and 2024 (see Figure 3.5.3).

Figure 3.5.3: Uncertainty in Slovenian manufacturing

Sources: SURS, Banka Slovenije calculations. Latest data: Q3 2025

Manufacturing itself is in a difficult position, with firms in Slovenia and firms in the EU overall reporting a sharp loss of competitiveness since 2021, weak demand, and low capacity utilisation in consequence. According to Eurostat data, the indicator of current manufacturing demand in Slovenia stood at –25.1 percentage points in July, down 13.8 percentage points on its average between 1996 and 2024, while that in the EU overall stood at –27.0 percentage points, down 14.4 percentage points on its average (see Figure 3.5.4). Despite these difficulties, the share of manufacturing firms citing financial constraints remains very low for now, and in Slovenia is actually below its long-term average.

The situation is better in other sectors of the economy. The share of construction firms reporting issues with low demand is below its average of 2004 to 2024 in Slovenia, and is roughly the same as its average in the EU overall. It is a similar situation in retail. The share of other service firms reporting issues with demand is also close to its average of 2004 to 2024. As it is in manufacturing, there is still no sign of significant financial obstacles in the other sectors of the economy, at least according to the survey indicators.

Figure 3.5.4: Survey assessments of current demand in manufacturing

Sources: Eurostat, Banka Slovenije calculations. Latest data: July 2025

A temporary revenue shock that raises current sales at firms by 10% is on average associated with a 5.4% increase in investment, reflecting the relatively high procyclicality of investment and its sensitivity to contemporaneous revenue changes.

Slow productivity growth is a key limiting factor for economic growth in Slovenia and in the EU overall. One of the main reasons for the decline in productivity growth is the uneven and extremely procyclical pattern of investment, which in particular prevents more intensive and less volatile (continual) investment.

Slovenia lies behind the EU average in terms of the ratio of investment to GDP, with a particularly pronounced gap in the business investment segment according to Eurostat data. This gap averaged 1.2 percentage points between 2013 and 2023.[24] The OECD data also rank Slovenia among the countries with the largest investment shortfall relative to the level before the global economic and financial crisis as measured by its percentage deviation from the trend (for more on the long-term overview of investment development, see Box 3.5).[25]

This box focuses on analyzing the procyclicality of corporate investment and its sensitivity to a temporary revenue inflow. The sample was divided into various subgroups to examine the response of firms according to their characteristics. The analysis is based on the assumption that firms whose investment is more sensitive to a temporary revenue inflow are more exposed to binding financial constraints that prevent long-term financing (for more on corporate financing, see Box 3.7).

Using the balance sheets of firms from the AJPES database, for the period of 1995 to 2024[26] the elasticity of investment to revenue shocks (θ)[27] was estimated. The key precept was that firms without financial constraints are less likely to adjust their investment plans to temporary revenue shocks, as their plans are usually longer-term in nature. Conversely firms with financial constraints are more likely to adjust their investment plans to temporary revenue shocks, as their limited access to debt financing and capital markets prevents long-term planning.[28] The sensitivity of corporate investment to temporary revenue shocks (i.e. the elasticity of investment to revenue shocks) is thus also an indicator of the financial constraints that firms face.

The elasticity of investment to revenue shocks (θ) is calculated as:

where Δlogy i,ₜ is the indicator of temporary revenue shocks, and denotes the rate of growth in residuals of the revenues of firm i in year t. Residuals of revenues are
obtained from a linear regression controlling for firm employment, a one-year lag of leverage,[29] and annual and sectoral fixed effects. ΔlogIi,ₜ denotes the growth rate of investment for firm[30] i in year t. For the final calculation of firms' marginal propensity to invest (MPI), the elasticity is multiplied by the ratio of investment to sales revenue.

In our sample of firms the coefficient of the pass-through of temporary shocks into investment is 0.54 implying that a temporary shock that raises current sales by 1% is, on average, associated with a 0.54% increase in investment. The IMF (2025) finds that an unexpected 1% increase in sales increases investment by 0.2% at European listed firms, but just 0.13% at US firms, indicating that the procyclicality of corporate investment in Slovenia and its sensitivity to temporary changes in revenues are relatively high.

The results across firms in Slovenia with different characteristics show that the sensitivity of corporate investment to revenue shocks varies (see Figure 3.6.1, left). Higher sensitivity is observed among export-oriented firms, whose share of the total population of firms increased after 2010 (see Figure 3.6.1, right), and among firms with a longer presence on the market. Elasticity is also higher for smaller firms,[31] which constitute the majority of firms in Slovenia. There is slightly higher sensitivity for firms in industrial sectors.

Figure 3.6.1: Responsiveness of investment and attributes of firms