Summary

Economic growth in Slovenia resumed in the second quarter, driven by stronger private consumption, while conditions in the export-oriented sector remain challenging. Inflation accelerated during the summer months, mainly due to rising food and energy prices.

The strengthening of economic activity in the euro area slowed in the second quarter. Quarterly GDP growth stood at only 0.1%, following growth of 0.6% at the beginning of the year. According to the monthly indicators, there was a fall in industrial production amid a decline in precautionary ordering from the US before the imposition of additional tariffs, while household consumption remained relatively robust despite the increased uncertainty. Survey indicators point to weak growth in activity also in the first two months of the third quarter, both in manufacturing and in services. According to the IMF’s July projections, the euro area economy is forecast to grow by 1.0% this year, and by 1.2% next year, which are similar figures to the ECB’s June projections (2025: 0.9%; 2026: 1.1%). Headline inflation remained unchanged at 2.0% in July, while core inflation stood at 2.3% for the third consecutive month.

The ECB and the Fed left their interest rates unchanged in July, amid the increased uncertainty surrounding the impact on inflation and economic activity from rising US tariffs. According to current interest rate swaps, the markets are expecting further cuts of 0.50 percentage points this year in the key rate at the Fed, but no further cuts in ECB interest rates over the remainder of the year.

Developments on the international financial markets have been relatively stable since the beginning of July, despite the ongoing harshness and volatility in US trade policy, and weaker data from the US labour market. Yields on US short-term government bonds were driven down by the markets’ strengthening expectations of faster cuts in interest rates at the Fed, while yields on German government bonds rose as the likelihood of additional loosening of ECB monetary policy diminished. The leading share indices rose over this period amid the partial easing of trade tensions, the rise being additionally supported by the mostly encouraging results released by listed companies.

In the domestic economy, GDP growth in the second quarter offset the decline recorded at the beginning of the year. There were increases in components of domestic demand, while the export sector continued to face difficulties in the shape of weak foreign demand and increased geopolitical uncertainty. Quarterly economic growth reached 0.7%, which was also the year-on-year rate of growth. The current data points to a continuation of this growth, with the economic sentiment strengthening slightly over the summer months. The indicators of private consumption available for July were also encouraging. The nowcast models are forecasting quarterly growth of 0.4% in the third quarter.

Employment has remained down in year-on-year terms since the end of last year, as a result of developments in the private sector. The decline in labour demand is confirmed by the decreasing number of job vacancies. The labour market nevertheless remains relatively tight: unemployment is at a historically low level, while labour shortages are still above their long-term averages. Growth in the average gross wage remains high (a year-on-year rate of 7.4% in June), largely on account of the wage reform in the public sector.

Foreign trade slowed in the second quarter. Merchandise exports were down in year-on-year terms (by 1.0%), while growth in merchandise imports and in services trade was more subdued than in the early part of the year. The six-month current account surplus narrowed in year-on-year terms, largely as a result of a reversal in the merchandise trade position from surplus to deficit.

Inflation rose over the summer, reaching 3.0% in August. The increase was driven mainly by energy and food prices. Higher energy inflation primarily reflects rising motor fuels prices and the reversal of the environmental levy on electricity. However, food inflation accelerated following global market developments as well as constraints in meat production, which were passed along the food supply chains to consumers. Core inflation strengthened to 2.9% in August, almost entirely due to a base effect in prices of non-energy industrial goods. Services inflation remained robust, supported by continued growth in real labour costs.

The consolidated general government deficit widened amid slower growth in revenues and the initial implementation of the new wage reform. It amounted to EUR 1,081 million over the first seven months of the year, EUR 603 million more than in the previous year. Growth in general government revenues slowed, largely on account of lower corporate income tax settlements and changes in the healthcare contributions last year, but also on account of revenues from the EU budget. The growth in general government expenditure is being driven by wages, while government investment remains lower than planned, despite an increase. The government is drawing up its key budget documents for the next two years. Their main objective will be maintaining the medium-term sustainability of the general government debt, and holding the general government deficit below 3% of GDP. The most notable pressures on the public finances come from the need for a rise in defence spending, demographic developments, and the ongoing post-flood reconstruction.

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This issue of the publication provides an in-depth analysis of the longer-term challenges of the Slovenian economy, focusing on investment and labour productivity. Our findings show that the structure of economic growth has changed markedly over the past three decades: prior to the global financial and economic crisis, growth was primarily driven by productivity gains, while in the post-crisis period it has relied mainly on employment growth. The trend decline in labour productivity growth raises concerns regarding the long-term sustainability of economic growth.

Investment is a key driver of productivity growth, which in turn depends also on the industrial intensity of the economy, innovation dynamics, and the adoption of new technologies. Data indicate that investment activity in Slovenia remains weak. In corporate spending on machinery and equipment the positive gap vis-à-vis the EU has narrowed significantly, while investment in construction—particularly in residential housing—and in intellectual property products lags behind the EU average, hampering faster economic convergence towards more advanced Member States. Government investment, on the other hand, exceeds the EU average but is strongly tied to EU funding and the domestic election cycle.

In addition to modest investment activity, several other structural challenges are weighing on productivity and potential GDP growth, most notably the changing structure of the economy and adverse demographic trends associated with labour market tightness. The rise in sickness absenteeism is also a source of concern. Persistent uncertainty, loss of competitiveness, low demand and weak capacity utilisation further undermine firms’ investment incentives. This is confirmed by microdata analysis, which shows that corporate investment is highly procyclical, reflecting uncertainty and sensitivity to transitory fluctuations in revenues, with small and export-oriented firms being particularly vulnerable.

1International Environment

Economic growth in the majority of the leading global economies exceeded expectations, despite the increased uncertainty in the second quarter. The data for July suggests that developments have remained relatively favourable, but also points to a deterioration in the economic sentiment.

After a rise in tensions in global trade caused by April’s announcement of reciprocal tariffs by the US administration, and the subsequent escalation of trade disputes, uncertainty eased somewhat over the summer. The US administration has already reached trade agreements with the EU,[1] the UK, Japan and South Korea. Conversely the outcome of negotiations between the US and certain key global economies, including China, India and Brazil, remains uncertain.

The U.S. economy grew by 0.7% in the second quarter on a quarter-on-quarter basis, representing a stronger-than-expected recovery from the 0.1% contraction recorded in the first quarter. The growth was primarily attributable to a decline of 30.3% in imports, following an increase of 37.9% in the first quarter, which was driven by the build-up of inventories of imported goods before the enforcement of the new tariff rates. The US labour market deteriorated slightly, despite the good economic data. New hires (excluding farming) amounted to 73 thousand in July, significantly below expectations. The Bureau of Labor Statistics also revised its figures for May and June downwards. The aggregate revisions show that there were 258 thousand fewer new hires in those months than originally announced, which suggests that the labour market is cooling slightly more quickly. Considering the Fed’s dual mandate, the probability of key interest rate cuts is strengthening despite persistently high overall and core inflation in the U.S.

Despite considerable uncertainty in the second quarter, linked to geopolitical and trade conflicts, quarterly economic growth in other major world economies, with the exception of the euro area, also exceeded expectations. GDP growth in China slowed slightly to 1.1% in the second quarter, but nevertheless outperformed the previous estimates. This reflects the positive effects of a range of support measures, including interest rate cuts and increased liquidity assistance to support the economy affected by U.S. import tariffs. Economic growth in the UK stood at 0.3% in the second quarter, having slowed from the rate of 0.7% seen in the first quarter, albeit by less than expected. The slowdown partly reflects the increase in the economic activity in February and March, i.e. before April’s changes in real estate taxes and the announcement of new US tariffs. Quarterly growth in Japan stood 0.3% in the second quarter, thereby exceeding market expectations.[2]

The PMI data suggests that global economic growth picked up further pace in July. The composite PMI reached its highest value of the year in July at 52.4 points. In contrast the sectoral PMI data shows an increasingly wide gap between manufacturing and services. While activity in services increased at its fastest pace since December of last year, global industrial production declined for the second time in the last three months. The data also shows a deterioration in the business sentiment: the indicator for future activity approached its lowest levels since the end of the pandemic for services and manufacturing alike.

Following the subdued economic growth in the euro area in the second quarter, weak growth is also expected in the third quarter, both in manufacturing and services.

Quarterly economic growth in the euro area stood at 0.1% in the second quarter, which is significantly lower than in the previous quarter, when it exceeded expectations with 0,6% (see Figure 1.2, left). Across major economies, GDP declined in Germany and Italy (by 0.1%), while growth strengthened in France (to 0.3%) and Spain (to 0.7%). The monthly indicators of economic activity for the second quarter point to a decline in industrial production, which had been a driver of growth in the early part of the year. With the effect of precautionary ordering of goods from the US before the imposition of tariffs fading, industrial production in the euro area declined by 0.3% in quarterly terms in the second quarter. Despite the uncertainty in connection with US trade policy, household consumption remained relatively robust according to the monthly indicators of retail turnover and services turnover (see Figure 1.2, right).

The survey data for the third quarter points to a continuation of weak growth in the euro area economy. According to the flash estimates, the composite PMI rose to 51.1 points in August, up from 50.9 points in the previous month (see Figure 1.2, left). The services PMI remains in positive territory (at 50.7 points, compared with 51.0 points in the previous month), while the manufacturing PMI strengthened unexpectedly (from 49.8 points to 50.5 points). This puts manufacturing in the zone of expansion for the first time in more than three years. Although the euro area economy remains relatively resilient for now, firms are cautious about future prospects, which was reflected in the economic sentiment indicator for August, which declined slightly amid a slight deterioration in confidence in all sectors and among consumers.

According to the IMF’s July projections, GDP growth in the euro area is forecast at 1.0% this year, up 0.2 percentage points on the previous projections. The upward revision was primarily attributable to a pronounced increase in Irish pharmaceutical exports to the US in the first quarter. The forecast for 2026 remains unchanged at 1.2%. Similar developments in economic activity are also expected by the ECB, whose June projections are forecasting growth of 0.9% this year and 1.1% next year.

In July, euro area inflation stood at its target rate for a second consecutive month.

Euro area headline inflation, as measured by the HICP, remained at 2.0% in July, unchanged from the previous month. Energy prices, which have been lower year on year since March, continued to dampen overall inflation. In July, they were down 2.4% year on year, compared with a 2.6% decline in June. By contrast, food prices continued to rise. Annual food inflation reached 3.3% in July, up 0.2 percentage points from June. The increase was mainly driven by the unprocessed food prices, which were up 5.4%, 0.8 percentage points more than in June. Meat and fresh vegetables prices were rising most notably. However, processed food prices rose more moderately, at 2.7% year on year (see Figure 1.3, left).

Inflation excluding energy and food stood at 2.3% in July, unchanged for the third consecutive month. Services inflation eased slightly to 3.2%, from 3.3% in June, while inflation of non-energy industrial goods strengthened to 0.8%, up from 0.5% in June, mainly reflecting higher year-on-year growth semi-durables prices (see Figure 1.3, left).

Inflation in Slovenia has been exceeding the euro area average, driven mainly by food prices.

While inflation in Slovenia was matching the euro area overall in May, the gap opened up over the summer. By July, inflation in Slovenia was 0.9 percentage points higher than the euro area average, reflecting stronger food price growth, which reached 7.1% – 3.8 percentage points higher than the euro area average (see Figure 1.3, right).

The dispersion of inflation rates across euro area countries has also increased in recent months. From January to May, the gap between the highest and lowest national rates was relatively stable, averaging 3.7 percentage points. Over the summer, however, it widened to 5.5 percentage points in July, largely due to differences between Estonia, with the highest inflation, and Cyprus, with the lowest.

2Monetary Policy and Financial Markets

The Eurosystem left the deposit facility rate unchanged at 2.00% in July. The Fed also kept its key interest rate unchanged at its July meeting, maintaining the target range at 4.25% to 4.50%.

After seven consecutive interest rate cuts, the Eurosystem left all three key interest rates unchanged in July. The rates on the deposit facility, main refinancing operations and the marginal lending facility remain at 2.00%, 2.15% and 2.40%, respectively. According to Eurosystem experts, domestic price pressures are easing, wage growth has slowed, and inflation is fluctuating around its 2% medium-term target. The European economy has so far proven generally resilient in a difficult business environment, partly reflecting the impact of past interest rate cuts.

At its July meeting, the Fed left its key interest rate unchanged, maintaining the target range at 4.25% to 4.50%, in light of increased uncertainty surrounding the impact of US trade policy on domestic inflation, the labour market, and economic activity. Key interest rates were also left unchanged in Japan (0.50%), Canada (2.75%) and Sweden (2.00%), while the central banks of Australia and the UK cut their rates by 0.25 percentage points (to 3.60% and 4.00% respectively).

Market expectations of faster interest rate cuts by the Fed have strengthened since its July meeting. They were fuelled by weaker US labour market data and July’s decline in inflation, which eased investors’ concerns that tariffs might trigger a sustained rise in US inflation. Meanwhile, since the ECB’s June meeting, markets have lowered their expectations for additional monetary policy easing by the ECB, particularly in light of the July meeting’s message that the scope for further cuts is limited and following the signing of the trade agreement between the US and the EU. This agreement has reduced the uncertainty surrounding the trade policy and helped improve investor sentiment towards the European economy. According to current overnight index swap (OIS) rates, markets now largely do not anticipate any further cuts in the ECB’s key interest rates by the end of the year, whereas in early June they were still expecting one more cut of 0.25 percentage points (see Figure 2.1, left). Markets are also expecting two cuts by the Fed in 2025, which would bring the key interest rate down to a target range of 3.75% to 4.00%.

Yields on short-term US government bonds have declined since the beginning of July, while yields on German government bonds and major global equity indices have increased.

Driven by the markets’ strengthened expectations that the Fed might make a larger cut in its key interest rate this year, yields on US short-term government bonds have declined by 0.09 percentage points since the beginning of July, while yields on long-term bonds have remained close to their early-July levels. Over the same period, yields on short- and long-term German government bonds rose by 0.07 percentage points and 0.10 percentage points, respectively, amid the reduced likelihood of further monetary policy easing by the ECB this year. The increase was further supported by investors shifting into higher-risk assets following the US administration's signing of a trade agreement with the EU and other partners, and its decision to defer the imposition of higher tariffs on Chinese imports for 90 days. Spreads between euro area bond yields with higher credit risk and German benchmarks narrowed during this period, reflecting the increased appetite for higher-risk assets.

In the wake of a partial easing of trade tensions, leading global equity indices have risen since the beginning of July. The increase was also supported by mostly encouraging results for the first half of the year released by listed firms, particularly in the tech sector. The leading European index (STOXX Europe 600) has gained 2.4% over this period. Similar gains were recorded by the leading US equity index (S&P 500), which rose 4.5%, and the Magnificent Seven index (an index of the seven largest US tech firms; see Figure 2.2, right), which surged 9.1% from the beginning of July. The two equity indices reached record highs in August. Hong Kong’s tech-focused Hang Seng index advanced by 3.9% over the same period, amid investor optimism following encouraging corporate results in the region and the withdrawal of US restrictions of chip exports to China.

The price of Brent crude rose sharply in late July following US threats to impose additional tariffs on countries importing Russian oil. It later declined after OPEC+ announced that the group would increase production in September and now stands close to its early-July level. Over the same period, gold has gained 2.9%, supported by strengthened expectations that the Fed will implement faster interest rate cuts.

The euro has strengthened this year, particularly against the US dollar. The US dollar has lost 9.8% against a basket of major trading partners’ currencies since the beginning of the year (see Figure 2.2, left). In light of the volatile shifts in US economic and trade policy, a number of market analysts have highlighted the risk that such reversals could prompt global investors to reallocate their assets, potentially undermining the US dollar's long-term role and status. Nevertheless, available data do not indicate a strategic sell-off of the US dollar or a significant reduction in exposure to US financial assets. The euro has benefited in this environment, largely due to greater political stability. It has appreciated 12.7% against the US dollar since the beginning of the year, and 5.8% against a basket of major trading partners’ currencies (see Figure 2.2, left). The euro’s role in the international financial system remains stable, with the share of foreign investment held in euros remaining  close to 20%.[6] By contrast, the share of global foreign exchange reserves accounted for by the US dollar has declined over the past 20 years from between 70% and 80% to around 60%, albeit primarily on account of other currencies (pound sterling, Canadian dollar, Japanese yen and others), which market participants attribute to the gradual diversification of global reserves.

3Domestic Economic Activity

Domestic economic activity in the second quarter was driven by strengthening private consumption and a build-up of inventories, while export developments worsened once again.

Domestic final consumption rose significantly in the second quarter. Its year-on-year growth rate strengthened by 1.4 percentage points to 2.4% compared with the previous quarter (see Figure 3.1, left). It was driven by a rise in private consumption, which was broadly based, although growth was highest in the services segment. Conditions for private consumption remained favourable, reflecting a continuation of the relatively strong growth in the real wage bill. Government final consumption expenditure was down just a fraction in year-on-year terms, on account of the very high base in connection with the reconstruction following the floods in August 2023. In fact, employment and healthcare spending continued to rise.

Domestic demand continues to be held back by weak gross fixed capital formation, which nevertheless recovered slightly in quarterly terms, thereby reducing the year-on-year decline to just 0.2% (see Figure 3.1, left). Developments varied within individual types of investment in the second quarter. Construction investment was up in year-on-year terms for the first time since the first quarter of last year. This was attributable to the completion of non-residential construction projects, while residential construction investment continued to decline sharply, despite high prices and a shortage of supply on the real estate market. There was also variation in the dynamics in investment in machinery and equipment: purchases of transport equipment remained down in year-on-year terms, while investment in other machinery and equipment recorded weak growth that was nevertheless encouraging given the situation in the international environment.

The relatively robust domestic consumption and the ongoing tensions in the geopolitical situation were reflected in foreign trade developments. Imports in the second quarter were up 2.7% in year-on-year terms, while exports were down 0.8% (see Figure 3.1, left), which meant that the contribution to GDP growth by net trade remained strongly negative. Alongside the rise in domestic final consumption, the increase in imports was also driven by a build-up of inventories, which can be attributed at least in part to the uncertainty largely related to volatile US trade policy.[7] Growth in services imports and exports was relatively weak.

Conditions for manufacturing remained difficult, with growth in aggregate value-added reflecting the recovery in construction and a slight increase in demand for services.

Manufacturing firms continue to face difficult business conditions. The year-on-year decline in their value-added deepened to 1.9% in the second quarter (see Figure 3.1, right), which coincided with worsening export performance and low survey assessments of current demand. The industries hit hardest by the decline in exports were the manufacture of motor vehicles, furniture, paper, metals and rubber, while the weak foreign demand was also reflected in the construction materials industry. Of the 21 industries for which monthly output indices are available, 12 suffered a year-on-year decline in activity in the second quarter. Among the more important industries, the decline was particularly pronounced in the manufacture of motor vehicles, where it stood at 13.6%. Value-added in the energy sector in the second quarter was unchanged in year-on-year terms, reducing the aggregate decline in industrial value-added by 0.3 percentage points to 1.6%.[8]

After falling sharply at the beginning of the year, value-added in construction rebounded significantly in the second quarter. Its quarterly growth rate exceeded 5%, raising the year-on-year change from –6.7% in the first quarter to 3.9% in the second quarter (see Figure 3.1, right). Monthly indices of the value of construction put in place show a year-on-year increase in activity in all construction segments other than civil engineering, where growth can be expected over the remainder of the year due to a low base and extensive works on the road network. However, a sustained recovery in construction is uncertain: the number of building permits issued in the second quarter and, even more evidently, the corresponding floor space were down in year-on-year terms, on an already low base.

Value-added growth in private-sector services was weak in the second quarter. The year-on-year rate reached 1%, an improvement on the previous quarter, which was marked by a small decline. Year-on-year developments in value-added were positive in all categories of services other than financial and insurance activities. This has coincided with a slight increase in domestic demand, while the contribution made by foreign demand has been significantly weaker since 2022, which is reflected in the rather low real growth in services exports. Growth in value-added also strengthened in public services (to 2.2%), in line with the increase in employment (see Figure 3.1, right).

The positive economic developments are thought to have continued in the third quarter.

There was a slight improvement in the economic sentiment in August (see Figure 3.2, left). Manufacturing confidence was slightly higher than in the previous months, albeit significantly below its long-term average, and the survey indicators of export order books and total order books also remained below their long-term averages. The construction confidence indicator remained in positive territory, albeit down on the very beginning of the second quarter. Construction firms once again reported an increase in the amount of construction put in place, but no rise in new orders. Retail confidence has been rather low since April. This has coincided with negative survey assessments of turnover, which is failing to reflect the developments in private consumption. Other private-sector services by contrast remained optimistic, with assessments of demand expectations remaining particularly encouraging. Consumer confidence again remained slightly down in year-on-year terms in August, as a result of increased concerns surrounding the future economic situation, their own financial situation, inflation and unemployment.

Year-on-year growth in the aggregate real value of card payments and ATM withdrawals was encouraging in July at 6.4% (see Figure 3.2, right). Other encouraging figures were the continuing growth in turnover in trade in motor vehicles and the record number of arrivals by foreign tourists. Real growth in the total value of invoices registered with tax authorities was slightly less favourable: it stood at just 0.5% in July.[9]

4Labour Market

Employment continues to decrease, with unemployment remaining historically low.

The number of persons in employment has been down in year-on-year terms since the end of last year, and reflects the cooling economy, particularly in manufacturing. The aggregate year-on-year decline stood at 0.4% in June (see Figure 4.1, left), and was largest in manufacturing, in administrative and support service activities, which includes staffing agencies, in construction, and in wholesale and retail trade. Employment growth in mostly public services remains positive by contrast. Similar developments are evident in the national accounts figures, according to which employment in the second quarter was down 0.4% in year-on-year terms.

The decline in demand for labour is also being reflected in the number of notified job vacancies, which stood at approximately 17,800 in the second quarter of this year according to the SURS survey data, down 13.7% on a year earlier (see Figure 4.1, right). The number has been falling in year-on-year terms for just over two years now, with the largest declines in the second quarter being recorded by construction and by transportation and storage. The survey data on expected employment generally indicates a positive outlook, although the trends differ across indicators. The Employment Service’s data shows employers’ outlook for employment to be better than in the first half of the year, while the SURS and Manpower surveys show a deterioration in the outlook over the same comparison, although they nevertheless remain positive.

The labour market remains relatively tight. This is evidenced by the low level of unemployment, and the survey data for labour shortages. The number of registered unemployed stood at 43,799 at the end of July, down 1.3% on a year earlier (see Figure 4.1, left). Unemployment rates also remain low: the registered unemployment rate stood at 4.3% in June, while the ILO surveyed unemployment rate stood at 3.2% in the second quarter. The Employment Service’s employment preview shows that 46.5% of employers faced a shortage of qualified candidates for hiring in the first half of the year, the lowest figure of the last four years (see Figure 4.2, left), bur still above its long-term average. Employers are mostly attributing their difficulties in finding labour to shortages of personnel on the labour market, and more than half of them expect the difficulties to persist over the next five years, with the bleakest expectations being seen in healthcare and social care. Further evidence of the labour shortages and the difficulties in recruitment comes from the surveys by the SURS and by Manpower.

Growth in the average gross wage remains high in the public sector.

Year-on-year growth in the average gross wage stood at 7.4% in June, approximately 1 percentage point higher than last year’s average (see Figure 4.2, right). Driven by the wage system reform, the public sector continues to exhibit strong growth of 9.4%. Growth was more moderate in the private sector at 6.0%, in line with the long-term dynamics in wage growth in the two sectors.[33] Amid high wage growth in the public sector, real growth in the average gross wage also remains robust: it stood at 4.7% in June, up 0.5 percentage points on last year. The Manpower survey shows the outlook for wage rises in the second half of the year to be at its weakest level in the last four years. Just under three-quarters of the surveyed employers have no plans to make changes to wages, and any rise would be conditioned mainly by the aim of retaining employees and ensuring competitiveness in new hires.

5Current Account

Year-on-year growth in international trade slowed in the second quarter. Services trade and merchandise imports were still increasing, albeit considerably more slowly than in the early part of the year, while merchandise exports declined.

According to the balance of payments figures, nominal growth in international trade slowed in the second quarter of this year: exports of merchandise and services were broadly unchanged in year-on-year terms (growth of 0.3%), while imports of merchandise and services recorded growth of 2.4%, down almost 4 percentage points on the previous quarter (see Figure 5.1, left).

Nominal merchandise exports in the second quarter were down in year-on-year terms (by 1.0%). A major factor in the decline was energy products, exports of which were down 15.2% in year-on-year terms. An even larger decline was prevented mainly by a rise in exports of medical and pharmaceutical products to Poland and Russia. As in the previous quarter, exports to France were down significantly (by 17.1%), most notably car exports.

Nominal merchandise imports were up 1.9% in year-on-year terms. There was a notable increase of 11.0% in imports of various machinery and equipment, the highest figure since the second half of 2022. Higher growth in imports was prevented by a significant decline in energy imports (of 24.0%). Despite a slight improvement in the terms of merchandise trade – in the wake of a fall (of 1.0%) in import prices and no change in export prices – the merchandise trade position in the second quarter recorded a deficit of EUR 316 million. This was EUR 310 million more than in the same period last year, and the largest since the end of 2022 (see Figure 5.1, right).

Nominal services imports and exports continued to record relatively high growth of more than 5% in the second quarter, although the rate was more moderate than in the early part of the year. Exports of telecommunications services and other business services continued to record growth (of 9.3% and 9.9% respectively). Exports of construction services have by contrast been declining since the second quarter of last year (and were down 13.6%).

The largest factors in the growth in services imports were travel services, telecommunications services and other business services. The largest increases in services exports in value terms were recorded by Switzerland and Luxembourg (other business services, and also transport services in the case of Luxembourg), while the largest increase in services imports was recorded by Croatia (travel services). The services trade surplus amounted to EUR 923 million, up EUR 51 million on the previous year. This was partly driven in part by an improvement in the terms of services trade, as export prices grew by 3.8% while import prices rose by 3.0%.

The deficit in primary income amounted to EUR 157 million in the second quarter, EUR 12 million less than last year. The year-on-year deterioration of EUR 137 million in the deficit in secondary income was mostly attributable to a wider deficit in income from current international transactions with EU institutions (excluding the ECB).

The current account surplus has more than halved over the last year: it amounted to EUR 0.6 billion over the first half of this year, and EUR 1.3 billion in the same period last year. The majority of the year-on-year change was due to the reversal in the merchandise trade balance, which turned into deficit in the first half of this year, but the deficit in secondary income also widened. The 12-month current account surplus is also gradually declining, and stood at EUR 2.4 billion in June.

6Inflation

Inflation strengthened over the summer primarily due to energy and food prices.

Year-on-year inflation as measured by the HICP rose to 3.0% in August, up from 2.9% in July. This was the third consecutive month of rising inflation (see Figure 6.1, left). Since May, rising inflation was driven roughly equally by all components other than services. June’s rise in energy inflation was mainly attributable to a base effect in fuels, while July’s rise was primarily related to the reversal of the environmental levy in electricity prices.[36] Fuels prices in July were also up on the previous month, although their rise was partly offset by a cut in excise duties on diesel and liquid fuels and by expanding regulated prices for petrol and diesel to motorway selling points too (see Figure 6.1, right).[37] Energy prices nevertheless remain down year on year, by 3.8% in August, following a monthly decline in fuel prices[38], driven by the appreciation of the euro and the renewed increase in pumping by OPEC+ countries.

While energy cost pressures remain relatively subdued, food price pressures are strengthening. In addition to higher cocoa and coffee prices, global beef prices have risen sharply, feeding through to domestic meat prices along the food supply chains. Higher incidence of bluetongue disease, reported by livestock farmers, poses an additional risk of further price increases. Rising agricultural input costs, fertilisers in particular, pushed producer prices for agricultural products up by 10.0% year on year in June, driven mainly by prices of animal products. Growth in prices of imported agricultural products and producer prices for domestic market are also accelerating: in July, they were up 5.2% and 3.3% year on year, respectively (see Figure 6.2, left).

Food inflation remained elevated in August at 7.7%, or 6.8% including alcoholic beverages and tobacco products (see Figure 6.2, right). In line with global price developments, recent months have seen notable rises in prices of meat, coffee and chocolate,[39] while prices of fruit and vegetables have fallen by less than usual.[40] This raised unprocessed food inflation to 10.9% in August, while processed food inflation rose to 5.6%. Rises in excise duties on tobacco and certain alcoholic beverages[41] are accounting for 0.1 percentage points of the processed food inflation as of June of this year, increasing the aggregate impact of tax measures on annual processed food inflation to 0.6 percentage points.[42]

Inflation excluding energy and food prices remains relatively stable, despite divergent developments across subcomponents.

Core inflation, i.e. inflation excluding energy and food prices, rose to 2.9% in August, having stood at 2.3% since May of this year (see Figure 6.3, left). The increase was driven almost entirely by prices of non-energy industrial goods (hereinafter: other goods), which were up 1.8% year on year in August, from 0.6% in July. This mainly reflected a one-off base effect caused by the unusually sharp decline in clothing and footwear prices in August of last year. Nevertheless, underlying cost pressures remain subdued. The manufacturing sector continues to face challenging conditions, particularly uncertain international environment reflected in weak external demand.

Services inflation remained robust at 3.7%, broadly unchanged since October last year. It continues to be supported by relatively strong wage growth,[43] underpinning private consumption growth. Indeed, services recorded the strongest private consumption growth across sectors in the second quarter of the year. Moreover, persistent services inflation is also reflected in firms’ short-term expectations for selling prices and in rising producer prices of services. However, a relatively stable aggregate figure conceals heterogeneous developments across subcategories. Growth in prices of restaurants and hotels, which account for 30% of all services, rose from 4.4% in March to 6.4% in August. These dynamics likely reflect both high food inflation as well as wage pressures stemming from labour shortages, which are passed through to consumer prices given the sector’s high labour intensity.[44] Labour costs growth thus remained the main driver of core inflation in the second quarter, while productivity gains had a moderating effect, alongside the widening gap between import and export price growth (see Figure 6.3, right).

7Fiscal Position

The consolidated general government deficit widened as growth in revenues slowed and the wages reform began its implementation.

The consolidated general government deficit over the first seven months of the year amounted to EUR 1,081 million. It was EUR 603 million wider in year-on-year terms. The main increases were in the deficits in the state budget and at the ZZZS, the latter in the wake of a smaller transfer from the state budget. The state budget deficit increased despite a reduction in the size of the extraordinary one-off measures.[45]

Consolidated general government revenues over the first seven months of the year were up 5.1% in year-on-year terms. The rate of growth was considerably slower compared with last year. The key factors were the adverse impact of corporate income tax settlements (a high base from 2024), and the temporary impact of last year’s change of supplemental health insurance contribution into a compulsory contribution (see Figure 7.1, left). Growth in social security contributions nevertheless remained solid (at 7.2%) amid robust wage growth and only a slight fall in employment, and accounted for more than half of the nominal increase in revenues from taxes and contributions.[46] Growth in personal income tax revenues slowed to 5.6% in the wake of adjustments of tax bands and allowances. By contrast, aggregate revenues have increased this year as a result of the first payments of the temporary (five-year) tax on total assets of banks (for 2024), which is a source of funding for the National Reconstruction Fund. Growth in revenues from taxes on goods and services was relatively solid at 4.2%. Revenues from excise duties were down slightly in year-on-year terms, while revenues from environmental levies for carbon dioxide emissions increased, as did the associated load. Revenues from EU funding were down.

Consolidated general government expenditure in the first seven months of the year was up 8.8% in year-on-year terms (see Figure 7.1, right). The largest factor was expenditure on wages and contributions for public-sector employees, which was up 12.4%, in consequence of the implementation of the wages reform at the beginning of the year, a rise in wages in June of last year, and promotions at the end of last year. There were also increases in interest payments, and in transfers to the budget funds.[47] The scaling-back of extraordinary one-off measures reduced growth in expenditure on goods and services and in subsidy payments. Transfers to individuals and households, which account for more than a third of total expenditure, were up 5.6%. The largest factor in this was pensions, whose growth of 7.3% was attributable to the regular pension increase and a rise in the number of beneficiaries. Investment expenditure and transfers were also up in year-on-year terms.

Budget documents for 2026 and 2027 are under preparation, and are scheduled to be approved by the government by the end of September. The medium-term objective of general government debt sustainability and general government deficit below 3% of GDP remain key determinants of fiscal policy. Given the uncertain international situation, it will be crucial to ensure a stable situation in the public finances. This improved after the pandemic, but structural challenges remain. The most notable of the numerous pressures on the public finances come from the need for a rise in defence spending,[48] demographic developments, the green transition, and the ongoing post-flood reconstruction. A number of reforms (pensions, healthcare, long-term social care) are in the process of being adopted or implemented, and will have an impact on public finance developments and the long-term sustainability of social welfare systems.

8Selected Theme

8.1Differences in foreign trade statistics

Major discrepancies between the statistics of foreign trade, the balance of payments and the national accounts have been evident since 2018, due to differences in their methodologies.

Data on merchandise imports and exports, i.e. merchandise trade, appears in statistics on three occasions: in SURS publications in the area of foreign trade and national accounts, and in Banka Slovenije publications in the area of the balance of payments. Owing to differences in methodology and data capture between the individual statistics, differences arise in the disclosed values. Banka Slovenije’s balance of payments data is an input in the national accounts statistics, for which reason clear differences are maintained solely between the SURS foreign trade statistics and the balance of payments statistics.

The foreign trade statistics provided by the SURS include data on merchandise imported from other countries and exported to other countries by Slovenia. Here the main criterion is the crossing of the national border. The data is collated via the Intrastat (trade between EU Member States) and Extrastat (trade with non-EU countries) systems. The first is based on direct reporting by firms, and the second on customs declarations (administrative sources).

In the national accounts data on merchandise trade appears mainly in the calculation of GDP according to the expenditure method, as imports and exports of merchandise and services. The ESA (European System of Accounts) 2010 methodology is used.

Data on merchandise trade in the balance of payments, which is provided by Banka Slovenije, is prepared in accordance with the sixth edition of the Balance of Payments Manual (BPM6), which is methodologically aligned with the European System of Accounts. Merchandise trade data is thus fully aligned in the balance of payments and the national accounts. Differences may arise solely on account of differences in revision policy and time discrepancies. There are several methodological differences between the disclosures of merchandise trade in the balance of payments and in foreign trade, but the main ones (see Figure 8.1.1) are as follows:

• merchandise trade in the balance of payments is based on a change of ownership between two economic entities;

• in foreign trade exports are disclosed FOB, and imports are disclosed CIF,[58] while both are disclosed FOB in the balance of payments;

• merchandise trade in the balance of payments does not include operations involving processing, because that is part of services trade;[59]

• balance of payments data include purchases and sales of goods of residents of Slovenia in third countries (without crossing of the Slovenian border) and forwarding of goods,[60] which foreign trade does not capture;

• balance of payments data also include other goods not captured in foreign trade statistics, such as purchases of fuel by Slovenian road haulage operators abroad and by foreign road haulage operators in Slovenia, and online purchases of goods by individuals.

Divergences between statistics have increased over the years. The deviation is greatest in exports of pharmaceutical products and imports of organic chemicals.

According to foreign trade statistics, merchandise exports in 2024 were up 99.6% on 2018, while imports were up 125.6%. The growth was considerably more moderate according to the national accounts[61] and the balance of payments data: exports were up 40.4%, and imports were up 43.3% or 44.0%.

The divergence caused by the different data capture methodologies is particularly pronounced in imports and exports of chemical products. The opening of a major logistics centre for pharmaceutical products in late 2018 led to a noticeable increase in Slovenia’s imports and exports of chemical products, which has had a significant impact on the rise in crossings of the national border by these products. This is evidenced in particular in the foreign trade statistics, as these also include inward and outward processing. According to these statistics chemical products accounted for almost a third of total merchandise imports and exports between 2018 and 2024,[62] while according to balance of payments data they accounted for an average of 14% of total merchandise imports and exports over this period.[63] A comparison of the absolute amounts shows that imports and exports of chemical products according to the foreign trade statistics were up EUR 22.8 billion and EUR 29.6 billion respectively over the observation period (see Figure 8.1.2). The rises according to the balance of payments data were significantly smaller, at EUR 2.8 billion for imports and EUR 3.3 billion for exports.

Divergences in the statistics for chemical products have also strengthened over the years. Last year the difference between imports according to the foreign trade statistics and according to the balance of payments data had reached EUR 27.2 billion, while the difference in the export figures was EUR 19.9 billion. Already in the first quarter of this year, the difference between the import figures amounted to EUR 7.7 billion, while the difference in the export figures was EUR 11.0 billion. The largest divergences are seen in imports of organic chemicals and exports of pharmaceutical products.[64]

According to foreign trade statistics, Slovenia’s largest trading partner for chemical products is Switzerland. However, according to the balance of payments data, most of these products are exported to Russia and imported from Germany.

Significant divergences also arise in the geographical breakdown of merchandise trade. According to the SURS foreign trade statistics, Slovenia’s largest merchandise exports last year were to Switzerland (33.6% of the total),[65] almost all of which consisted of chemical products, which accounted for 97.6% of total merchandise exports. Switzerland is Slovenia’s most important export market for chemical products according to the aforementioned data source, accounting for 72% of these exports.[66]

By contrast, according to balance of payments data, Slovenia’s largest merchandise exports last year were to Germany[67] (17.4% of total merchandise exports), and Switzerland was only in 12th place with a share of 2.3%.[68] According to this source, the largest exports of chemical products were to Russia (11.3% of the total), primarily medical and pharmaceutical products (see Figure 8.1.3, left).

Similar divergences arise on the import side. According to the SURS foreign trade statistics, Slovenia’s largest trade last year was with Switzerland,[69],[70] which accounted for 23.3% of its total merchandise imports. Almost all of this (98.9%) consisted of chemical products, in which the most important components were organic chemicals and medical products (55% and 45% of all chemical products from Switzerland respectively).

By contrast the balance of payments data shows that Germany[71] was Slovenia’s largest import partner last year (with 17.7% of total merchandise imports), while Switzerland was ranked fifth with a share of 5.2%. According to this source, the largest imports of chemical products also came from Germany, which accounted for 19.8% of the total (see Figure 8.1.3, right).

In geographical terms the largest divergences between the compared statistics arise in trading with Switzerland. The mismatch between the foreign trade statistics and the balance of payments data arises from the large share of operations involving processing, where goods physically cross the border (and are therefore captured in foreign trade statistics) but do not change ownership (and are therefore excluded from balance of payments data). Usually the value added of operations involving processing is lower, as the firm generates value added only from the processing services provided (employee compensation, energy costs, margin). These transactions can contribute to employment, but jobs of this kind are usually labour-intensive and less productive.

The divergences between different external trade statistics reflect differences in methodology and the treatment of transactions, which is important to consider when interpreting patterns and developments.

The foreign trade statistics and the balance of payments data serve different purposes, and meet different needs on the part of users. The foreign trade statistics are the most suitable source of information when there is a need for detailed data on international merchandise trade. They disclose data broken down by product, sector and destination, which allows for analysis of which sectors (or products) are responsible for the largest exports, and for investigation of the breakdown of imports and exports by product. Data on quantities is provided in addition to the value of the trade. If this data is linked to corporate accounting data such as value-added and number of employees, it is for example possible to calculate the share of exports per employee, to examine the impact of exports on employment and productivity, and to carry out numerous other kinds of analysis.

When the user does not need information about international transactions for merchandise only, but also for services, the balance of payments is a suitable information source. It measures cash flows in imports and exports, but not physical quantities, and detailed data broken down by product and by destination is not published for merchandise.

The balance of payments data are better suited for monitoring economic activity, in that it is methodologically aligned with the national accounts statistics. These allow for the monitoring of developments in GDP, for which reason the balance of payments data is also used in analysis of the external balance and sustainability. They are primarily a resource for monitoring the current account, analysing the impact of actual imports and exports on economic activity, assessing the ratio between export revenues and import expenditures, etc.

9Statistical Appendix

10List of abbreviations