Monetary policy cannot fully offset the short-term inflationary effects of an oil shock, but it can significantly contain its medium-term consequences.

The escalation of the conflict in the Middle East following the US attack on Iran in February this year triggered a sharp rise in oil prices and thus led to a negative supply shock for the euro area and Slovenia. As both economies are net importers of energy, higher energy prices worsen the terms of trade, reduce purchasing power and increase firms’ costs, thereby pushing up inflation while weighing on economic activity (see Boxes 3.4 and 5.1). This poses a particular challenge for monetary policy, as it primarily dampens inflationary pressures by restraining demand through higher interest rates, meaning that the scope for monetary policy to address the consequences of a supply shock is limited. At the same time, under the current circumstances this implies a trade-off between containing inflationary pressures on the one hand and limiting the adverse effects of the oil shock on economic activity on the other. In this box, we therefore use historical data to analyse the effects that oil supply shocks and monetary policy shocks have had on the euro area and Slovenian economies, as well as on firms’ expectations, since 2000.

We estimate the dynamic effects of these two types of shocks, namely oil supply shocks and monetary policy shocks, using the local projections method (Jordà, 2005), with both shocks identified outside the model using high-frequency data. Oil supply shocks are based on unexpected changes in oil futures prices around OPEC decision announcements (Känzig, 2021), while monetary policy shocks are based on surprises around ECB monetary policy announcements, purged of the information effect (Jarociński and Karadi, 2020).[3] Using this empirical approach, we first estimate the effects of both shocks on key macroeconomic aggregates and then on firms’ expectations.[4]

Monetary policy has limited scope to affect the short-term inflationary effects of oil shocks, as its impact on consumer prices strengthens only with a lag, when the initial inflationary effect of a transitory oil shock is already fading.

Both shocks reduce industrial production and increase unemployment, while affecting prices in opposite directions (Figure 1.1.1). An oil supply shock immediately raises the oil price and consumer prices (HICP), however, this price effect fades over time, in line with the predominantly transitory nature of the identified oil supply shocks in the sample under consideration. By contrast, a monetary policy tightening lowers both the oil price and consumer prices, although the effect on the latter materialises only gradually and with a certain lag. Unlike an oil shock, a monetary policy shock has more persistent effects on the level of consumer prices. Despite some differences, which also reflect a different time profile, the estimated effects on the Slovenian economy are broadly consistent with those presented for the euro area. This indicates a similar transmission of both shocks in Slovenia and the euro area, which is favourable from the perspective of the appropriateness of the common monetary policy response to conditions in the Slovenian economy.

The estimated macroeconomic responses also reveal a timing mismatch between the direct inflationary effect of a transitory oil shock and the effect of monetary policy on aggregate consumer prices. The impact of monetary policy on the HICP strengthens only with a lag, when the initial inflationary effect of the oil shock is already fading, while both shocks weigh on economic activity in the intervening period. This suggests that monetary policy has limited scope to affect the short-term inflationary effects of oil shocks, particularly when they are transitory in nature.[5] However, as monetary policy also affects the formation of expectations, we next examine how firms’ expectations respond to the two shocks.

The outbreak of war in Iran has already led to noticeable changes in expectations among euro area firms, which were most pronounced in the first months following the escalation of the conflict between the US and Iran. European Commission (EC) survey results show that between February and April 2026 firms markedly raised their expectations for selling prices while at the same time lowering their expectations for future economic activity, consistent with the stagflationary nature of the oil shock. This effect had largely faded by the beginning of the second half of the year as tensions in the Middle East partially eased. Nevertheless, the volatile course of events highlights the importance of continuing to monitor the pass-through of the initial price pressures to firms’ expectations and broader inflationary pressures.

Monetary policy has a significant impact on firms’ price expectations, and this effect emerges more rapidly than the impact on consumer prices, in line with the expected sequence of monetary policy transmission.

The estimated responses of firms’ expectations to the two shocks analysed are consistent with the estimated macroeconomic effects (Figure 1.1.2).[6] An oil supply shock initially raises firms’ selling price expectations, but this effect fades over time and becomes negative in the medium term. This reflects the fact that, with a certain lag, the oil shock also lowers firms’ expectations for activity and employment, thereby exerting downward pressure on price expectations. A monetary policy tightening delivered through higher interest rates, meanwhile, lowers all three groups of firms’ expectations. From the perspective of containing inflationary pressures, a particularly important finding is that firms’ selling price expectations, in line with the expected sequence of monetary policy transmission, respond to monetary policy considerably faster than the macroeconomic aggregate of consumer prices (HICP). This suggests that even in the short term monetary policy can, at least to some extent, influence the emergence and propagation of inflationary pressures through its effect on firms’ price expectations.

In the short term, monetary policy counteracts the effects of an oil shock on price expectations, while in the medium term it amplifies them. Under such conditions, the monetary policy response may be excessive from the perspective of containing price pressures and restraining economic activity.

Extending the analysis to a more detailed level covering 48 industries in manufacturing and services shows that activities whose price expectations are more sensitive to oil supply shocks also tend to be more sensitive to monetary policy shocks (Figure 1.1.3). The sensitivity of each activity is measured by the maximum response of price expectations in the expected direction following each shock, separately for the short and medium term. In the short term, when the two shocks affect price expectations in opposite directions, their effects are negatively correlated. This means that the dampening effect of monetary policy tightening on price expectations tends to be stronger precisely in those activities where the oil shock raises them the most. In the medium term, when the estimated effect of the oil shock on price expectations turns negative, the correlation becomes positive. During this period, a restrictive monetary policy shock further amplifies the negative response of price expectations already caused by the oil shock.

Figure 1.1.3: Relationship between the effects of an oil supply shock and a monetary policy shock across activities

Sources: Eurostat, ECB, EC, Känzig (2021), Jarociński and Karadi (2020), Banka Slovenije estimates and calculations.

Note: For each activity, short-term sensitivity is calculated as the largest response of price expectations in the expected direction during the first 12 months after the shock, namely the largest positive response to an oil shock and the largest negative response to a monetary policy shock. Medium-term sensitivity is calculated for both types of shock as the largest negative response over the entire period (24 months).

Overall, the results presented in this box indicate that monetary policy is of limited effectiveness in mitigating the direct inflationary effects of moderate and transitory oil supply shocks.[7] Its impact on aggregate prices materialises fully only with a lag, when the initial inflationary pressure from the oil shock is already subsiding, while both shocks weigh on economic activity. In the medium term, restrictive monetary policy may also amplify the negative price effects of a transitory oil shock. However, these results do not necessarily imply that a monetary policy response to supply shocks is unwarranted. In the case of large and persistent shocks that could trigger second-round effects or a de-anchoring of inflation expectations, monetary policy becomes an important tool for limiting inflation persistence and preserving the anchoring of expectations. The key consideration is therefore to assess the persistence of the shock and the risk that the initial cost pressures spill over into broader and more persistent inflation.

The average estimate from the set of nowcasting models indicates quarterly GDP growth of 0.5% in the third quarter.

In addition to autonomous model dynamics and strong quarterly real GDP growth in the second quarter, the current estimate (Figure 3.1.1, left) reflects mixed developments in economic sentiment in the first two months of the third quarter. The 0.6 percentage point improvement in July was driven mainly by higher confidence in manufacturing and, to a lesser extent, among consumers and in retail trade, while confidence in services deteriorated. In August, economic sentiment deteriorated by 0.7 percentage points, primarily owing to lower confidence in manufacturing and among consumers. The deterioration was partly mitigated by higher confidence in services and, to a lesser extent, in retail trade.

A more significant adjustment to the estimate of quarterly GDP growth is expected in September, when July data for key monthly indicators of economic activity will be released, including industrial production, the value of construction put in place, and the volume of activity in services and trade.

The limited set of information available from high-frequency indicators is also reflected in the histogram of the nowcast distribution (Figure 3.1.1, right). The range of estimates, based on the 25th and 75th percentiles of the distribution, currently stands at between 0.3% and 0.9%.

Figure 3.1.1: Nowcasts for economic growth

Sources: SURS, Banka Slovenije calculations.

Notes: The left chart displays 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 nowcasts. The line indicates the average nowcast of quarterly GDP growth for the third quarter of 2026. The right chart illustrates the distribution of the nowcasts for quarterly GDP growth in the third quarter of 2026. 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: 26 August 2026.

The first annual estimate of GDP growth for 2025 is 0.4 percentage points higher compared to estimates based on quarterly data sources.

On 31 August 2026, the Statistical Office of the Republic of Slovenia published the first annual estimate of national accounts for 2025. Compared to the previous estimate based on quarterly data sources, last year’s GDP growth was revised upwards by 0.4 percentage points, to 1.5%.

On the expenditure side, changes were evident in most aggregates, most notably in government final consumption, where growth was revised upwards by 1.6 percentage points to 3.2%. Growth in gross fixed capital formation was also increased, from 4.1% to 5.3%, and private consumption rose somewhat more strongly than initially estimated. In line with higher growth in expenditure aggregates, import growth was revised upwards by 0.7 percentage points to 2.8%. Export growth did not change significantly. Inventories were also minimally adjusted, contributing 0.4 percentage points to last year’s GDP growth (Figure 3.2.1, left).

Value added growth was also more favourable than indicated by quarterly data, rising from 1.1% to 1.5% after considering companies’ annual financial statements. The new data show weaker conditions in industry, slightly lower growth in construction, and improved conditions in services. The latter is consistent with stronger final consumption in the domestic market. Value added growth in private services was thus revised upwards to 2.9%, and in public services to 2.7% (Figure 3.2.1, right).

Figure 3.2.1: Changes in the growth of real GDP components in 2025

Source: SURS.

Quarterly data aligned with the published first annual estimate of national accounts for 2025 will be released by the Statistical Office of the Republic of Slovenia on 23 September. Therefore, it is not yet possible to calculate the new effect of last year’s economic growth carry-over into this year. This will be presented in the October edition of the publication.

Final energy consumption in Slovenia is gradually decreasing, but the share of fossil fuels remains dominant.

Analysis of the energy balance shows that final energy consumption in Slovenia has gradually decreased since 2008, mainly due to technological progress, restructuring in industry, and greater efficiency in households. In 2024, it was 17.3% lower compared to 2008.[9] The main constraint is transport, where energy consumption in 2024 was 3.7% above the average for the observed period. Transport thus remains the largest energy consumer, with Slovenia serving as an important transport hub with highly developed logistics, dispersed settlement, and insufficiently developed public transport. Domestic energy production, on the other hand, has been declining in the long term due to the phasing out of coal-based production. At the same time, the share of fossil fuels in final consumption in 2024 was 59.8%. This is 5.4 percentage points lower than in 2008, but at the level of the average for the observed period. This implies considerable exposure to external risks in today’s environment of heightened geopolitical tensions and instability in energy markets.

The energy intensity of the economy is decreasing due to technological progress and industrial restructuring, but this has not yet affected energy dependence on imports.

The energy intensity of the economy, measured as energy consumption per unit of value added, is decreasing, especially in manufacturing, where the indicator value in 2024, at 3.8 TJ per million value added, was almost half that of 2008 (Figure 3.3.1, left). Energy-intensive sectors contributed significantly to this, but at the cost of reduced production volume. Meanwhile, energy dependence, measured as the ratio of net imports to total energy supply, is not decreasing and, amid annual fluctuations in domestic production – mostly due to hydrological conditions and maintenance works at the nuclear power plant – remains close to 50% (Figure 3.3.1, right). This means that domestic sources provide only about half of the required energy.

Figure 3.3.1: Energy intensity and import dependence

Sources: SURS, Banka Slovenije calculations.

Note: In the right chart, data for 2025 are provisional. Energy intensity is measured as final energy consumption in TJ per million real value added. Energy dependence is the ratio of net imports to total energy supply. Total energy supply consists of domestic production and net imports. Time series with a constant base year 2020 are used for value added. 1 TJ (terajoule) = 277.8 MWh.

Current challenges in manufacturing, especially in energy-intensive sectors, coincide with a period of high energy prices.

High electricity and natural gas prices after 2021, along with other adverse factors, have negatively affected the performance of manufacturing, especially energy-intensive sectors.[10] Focusing only on the cost aspect, according to the Statistical Office of the Republic of Slovenia, in the first quarter of this year the average electricity price for non-household consumers was 76.5% higher than the average for the period 2012–2021, and the price of natural gas was 59.4% higher, with prices beginning to rise sharply already in the second half of 2021.

Energy-intensive sectors have faced a noticeable decline in production since the onset of the energy crisis, although this trend is not limited to them. Despite at least temporary improvements in recent months, the gap in annual production compared to the peak reached after 2020 remains substantial and is present in most manufacturing activities. In energy-intensive sectors, the gap in June amounted to 17.2% overall, ranging from 7.3% in metal production to 23.7% in paper production (Figure 3.3.2). The total shortfall in manufacturing was 3.7%, and 2.0% excluding energy-intensive sectors.

Figure 3.3.2: Energy intensity and manufacturing production

Sources: SURS, Banka Slovenije estimates and calculations.

Note: In the chart, arrows indicate a break in the scale on the right axis. Total production of energy-intensive sectors and pharmaceutical production are estimated using shares in value added.

Challenges in manufacturing are already affecting the labour market. In energy-intensive sectors, the total number of employed persons has been declining year-on-year since April 2023. In June this year, the decrease reached 3.3%, with the most pronounced reduction, 6.3%, in paper production, and the smallest, 1.3%, in chemical production. The decline in the aggregate of other sectors, which has persisted since the end of 2024, slowed this year and amounted to 0.8% in June. Difficult conditions in manufacturing are also the main factor behind the overall reduction in the number of employed persons in the country (Figure 3.3.3, left).

The withdrawal of domestic energy-intensive and other production puts pressure on the goods trade balance. Excluding pharmaceutical industry products due to the large volume of processing trade, according to the Statistical Office of the Republic of Slovenia, the annual trade balance of manufacturing products shifted from a small surplus at the beginning of 2021 to a deficit of EUR 10.9 billion by June this year. During this period, the annual deficit in the trade of products from energy-intensive sectors increased by EUR 8.6 billion to EUR 9.5 billion (Figure 3.3.3, right).[11] Alongside reduced domestic production, rising prices have also contributed significantly to the increase in the deficit. This is indicated by the weighted index of total producer prices in domestic energy-intensive sectors, which in June was 36.6% above the average for the first half of 2021, that is, before the onset of rapid energy price increases.

Figure 3.3.3: Employment and goods trade in manufacturing products

Sources: SURS, Banka Slovenije calculations. Latest data: June 2026.

Note: In the right chart, for greater clarity, pharmaceutical industry products are excluded from the total goods trade in manufacturing products in two cases. The reason is the significant impact of processing trade, which obscures goods trade as it does not directly relate to production. Processing trade also has a major influence on the trade balance of chemical products, which are classified as energy-intensive. Goods trade balance is presented according to NACE classification.

To preserve the domestic industrial base and achieve a sustainable reduction in emissions, an appropriate balance between the cost aspect of the energy transition and global competitiveness of production will be crucial.

The developments in production and goods trade presented in the box increase import dependence on certain key groups of products essential for the normal functioning of the economy and society, such as toilet, household, hygiene, and office supplies, plastics, fertilizers, paints, disinfectants, detergents, and toiletries, explosives, wooden boards, veneer, construction furniture, glass, ceramics, bricks, insulation materials, cement, concrete, iron, steel, and aluminium.

Increased cost pressures have contributed to reduced competitiveness of Slovenian exporters in international markets and heightened adverse risks to the long-term sustainability of the industrial base. Such challenges are characteristic of the entire EU (see Box 5.1), where high energy prices represent a significant structural barrier to economic competitiveness. This particularly affects energy-intensive activities, reducing their price competitiveness and investment attractiveness. As a result, the risk of shifting production and new investments to environments with more favourable cost conditions is increasing.[12] It should be emphasized that high energy prices are only one of the inhibiting factors for the competitiveness of Slovenia and the EU.

The shift towards further reduction of final energy consumption, energy intensity, and import dependence is a long-term process that is technologically, infrastructurally, and financially demanding, as it requires restructuring final consumption, increasing domestic production without fossil fuels, and a thorough transformation of the energy infrastructure (see also Box 3.5). In an environment of strong global competition, external price competitiveness and reliability of energy supply are fundamental factors for the stable functioning of society and prerequisites for achieving cyclical macroeconomic stability, addressing long-term structural challenges, and restructuring the economy. Achieving a balance between the cost aspect of the energy transition and the external competitiveness of domestic industry should therefore become one of the central guiding principles of economic policy both domestically and in the EU. Easing international geopolitical tensions would greatly facilitate the achievement of this balance.

Understanding the causes of the increase is key to assessing the macroeconomic implications of higher oil prices, as supply and demand shocks have different effects on inflation and economic activity.

The recent sharp rise in crude oil prices reflects a combination of supply-side constraints and still relatively strong global demand. Supply constraints are linked to the war in the Middle East and restrictions on shipping through the Strait of Hormuz, one of the world’s most important oil shipping routes. At the same time, still relatively robust global economic activity is keeping demand for oil high. As the macroeconomic effects of higher oil prices depend on the factors driving the increase, the first part of the box estimates their contributions to oil price developments this year, while the second assesses their combined effects on real GDP and inflation in Slovenia.

The structural shocks are identified using a quarterly global oil market VAR model that includes global economic activity, global crude oil production, the price of crude oil and global crude oil inventories. By imposing sign restrictions following Kilian and Murphy (2014), we distinguish between oil supply shocks, global aggregate demand shocks and oil inventory demand shocks, with the latter capturing changes in desired inventory holdings arising from precautionary or speculative motives.

The decomposition of Brent crude oil price developments into structural drivers shows that negative oil supply shocks and robust global demand contributed to its increase after the outbreak of the conflict to a broadly similar extent (Figure 3.4.1). The current increase therefore cannot be regarded as an isolated supply shock (the effects of an oil supply shock in Slovenia and the euro area are also presented in Box 1.1). Strong global demand may mitigate the decline in economic activity that typically follows a negative supply shock, but at the same time further increases the persistence of energy price growth and broader inflationary pressures.

Figure 3.4.1: Decomposition of crude oil price developments

Sources: ECB, Banka Slovenije calculations.

Note: In the left chart, the contributions of the identified structural shocks to the year-on-year rate of change in the Brent crude oil price are shown, while the right chart presents the main drivers of the increase in oil prices in 2026.

The effects on the Slovenian economy are estimated using a block-exogenous VAR model following the approach of Peersman and Van Robays (2012). The global block includes global economic activity, global crude oil production, the price of crude oil and global crude oil inventories, while the Slovenian block includes the quarterly growth rates of real GDP and the HICP. The global block is strictly exogenous with respect to the Slovenian economy: global shocks may affect Slovenian variables contemporaneously and with a lag, while feedback from the Slovenian economy to the global oil market is ruled out. The quarterly responses of GDP growth are cumulated and expressed as percentage deviations of its level from the no-shock path, while the responses of HICP growth are converted into effects on year-on-year inflation, expressed in percentage points. To ensure comparability, the structural shocks are normalised such that each causes a 10% increase in the real oil price on impact.

For the same increase in oil prices, a negative supply shock has a smaller and more short-lived inflationary effect and lowers the level of real GDP, while higher oil prices stemming from a global demand shock raise inflation more markedly and persistently and increase the level of real GDP.

The initial inflationary increase is primarily consistent with the direct pass-through of higher crude oil prices to the prices of motor and other liquid fuels. The inflationary effect then fades relatively quickly as the response of oil prices moderates, while weaker economic activity partly contains broader indirect price pressures and second-round effects. The level of real GDP declines owing to the adverse impact of higher energy costs on production and the reduction in households’ real disposable income (Figure 3.4.2).

Figure 3.4.2: Responses of the level of real GDP and year-on-year HICP inflation in Slovenia to global oil market shocks

Source: Banka Slovenije calculations.

Note: The shocks are normalised such that they cause a 10% increase in the real price of crude oil on impact. The response of the level of real GDP in the left chart is expressed as a percentage deviation from the no-shock path, while the response of year-on-year HICP inflation in the right chart is expressed in percentage points. The solid lines show the point estimates, while the shaded areas denote 90% uncertainty bands. The horizontal axis shows the number of quarters since the shock occurred.

This year’s rise in oil prices may lead to more persistent inflationary pressures but a less pronounced slowdown in economic activity.

The estimates indicate that this year’s rise in oil prices reflects the simultaneous effects of global demand factors and oil supply constraints. Although oil supply constraints are expected to raise inflation only temporarily and dampen economic activity in Slovenia, the contribution from global demand may amplify the impact on inflation and mitigate the negative effect on GDP. Based on the estimated structural shocks in the first and second quarters of 2026, their combined contribution to inflation this year is estimated at approximately 0.7 percentage points, while their contribution to annual real GDP growth is estimated at around –0.1 percentage points. The main risks surrounding these estimates relate to the duration and intensity of supply disruptions and the extent to which their price effects are amplified by persistent global demand and precautionary inventory accumulation in the oil market.

The energy shock does not induce banks with greater exposure to carbon-intensive firms to increase financing for decarbonisation.

The euro area economy’s high dependence on energy imports increases its exposure to external energy and geopolitical shocks. The latter are transmitted through higher energy costs to inflation, reduce households’ real income and firms’ profitability, and dampen economic activity and investment, while also weakening the competitiveness of energy-intensive firms (see Boxes 3.4, 5.1 and 6.1). Decarbonisation reduces emissions and can strengthen economic resilience. Greater energy efficiency and a higher share of domestic low-carbon energy sources reduce dependence on global energy prices. Model-based and empirical analyses for euro area countries show that more decarbonised economies can mitigate the impact of such shocks on their economic activity, electricity prices and, consequently, headline inflation.[13]

Decarbonisation can also help firms reduce their exposure to future energy shocks, raising the question of whether they have sufficient financial resources available to make such adjustments. The role of bank financing in the green transition of euro area firms is examined in the Banka Slovenije analysis by Neža Ahčin (2025), The Impact of Credit Supply on Firms’ Green Transition in the Euro Area, which investigates how changes in bank credit supply affect the growth in firms’ carbon intensity, measured as the ratio of direct greenhouse gas emissions to revenue.

When assessing the impact of lending activity, a key challenge is to disentangle credit supply from firms’ demand for financing. A decline in lending to a particular firm may reflect either tighter lending conditions imposed by the bank or lower demand by the firm, for example due to less favourable investment opportunities.[14]

The results of the analysis show that greater credit supply does not necessarily lead to faster decarbonisation. In the short term, a one percentage point increase in credit supply is associated with a 0.01 percentage point higher growth rate of carbon intensity. This shows that firms use additional available funds primarily to expand production and operations, but the estimated responses vary considerably between firms. The effect of greater credit availability on decarbonisation is more favourable for firms that were initially less carbon-intensive[15] and for those operating in sectors with greater capacity or potential for greening.[16] A one percentage point higher growth rate of credit supply reduces carbon intensity growth by 0.07 percentage points for less carbon-intensive firms and by 0.03 percentage points for more carbon-intensive firms with greening potential. The results thus suggest that the green transition depends not only on the amount of financing, but also on its allocation to firms with feasible technological options for reducing emissions.

These results raise the question of how euro area banks adjust lending in the face of energy shocks, when pressures or economic incentives for firms to reduce energy dependence increase. Energy price shocks increase the returns on investment in energy efficiency, but at the same time raise the credit risk of firms that are more exposed to such shocks. This is particularly relevant for banks with greater exposures to these firms. An econometric approach based on local projections allows us to identify whether, following an energy shock, banks with greater pre-existing exposure to carbon-intensive firms increase their lending relatively more to firms with greening potential.

Following the approach of Jordà (2005)[17] we estimate the impulse responses of credit supply to an energy shock using the following model[18]

where the left-hand side of the equation denotes the cumulative percentage change in lending volume from the period immediately preceding the shock to time horizon h at the bank–firm level. The variable Shock denotes the energy shock, measured using Känzig’s oil supply news shock, which captures unexpected changes in expectations regarding future oil supply[19]. Potential for greening is a binary variable defined in the same way as in Ahčin (2025). A bank’s exposure to carbon-intensive firms denotes the share of its credit exposure to these firms in its total credit exposure to firms, measured in January 2019, before the start of the shock period analysed.

As a decline in lending to carbon-intensive firms, with or without potential for greening, following an energy shock does not in itself demonstrate a contraction in credit supply, we include granular fixed effects in the model specification. Firm–time fixed effects[20] absorb all time-varying firm-level factors that are common across the banks lending to a given firm and therefore capture, among other factors, changes in credit demand. In addition, bank–firm fixed effects account for persistent characteristics of individual bank–firm relationships, while bank–time fixed effects absorb shocks affecting the bank as a whole, such as changes in funding costs, capital or liquidity. In this model, identification of the effect relies on comparing different banks lending to the same firm in the same period, where banks differ in terms of their pre-existing exposure to carbon-intensive firms. The sample covers the period from 2019 to 2025 and includes all bank loans to firms within the euro area.

The estimated coefficients are not statistically significant, and therefore do not provide evidence that banks with greater pre-existing exposure to carbon-intensive firms increase their lending relatively more to firms with potential for greening following an energy shock (Figure 3.5.1). As the concept of greening potential is more relevant for carbon-intensive firms, we subsequently restrict the sample to these firms. This allows us to examine whether, following an energy shock, credit is reallocated within the group of carbon-intensive firms towards those with greening potential. The results remain statistically insignificant, indicating that, following an energy shock, more exposed banks do not systematically adjust their lending to carbon-intensive firms with greening potential differently from less exposed banks.

Figure 3.5.1: Response of credit supply to an adverse energy shock

Sources: AnaCredit, ECB climate change-related indicators, TAC & TEC tool (Alessi, L. & Battiston, S.), Känzig (2021), Banka Slovenije calculations.

Note: The chart shows the response of credit supply to firms with greening potential to a one-standard-deviation energy shock by a bank whose exposure to carbon-intensive firms is one standard deviation higher. The shaded area denotes the 95% confidence interval.

The absence of a reallocation of lending by banks with greater exposure to more carbon-intensive sectors towards firms for which access to financing has been found to have a positive effect on decarbonisation likely reflects the limited impact of energy shocks on firms’ creditworthiness. Available analyses suggest that firms largely absorb energy shocks through their margins or pass them on along the price–cost chain. The increase in credit risk following energy shocks is generally concentrated among more vulnerable and highly energy-intensive firms.[21] At the same time, banks are also likely to face difficulties in identifying green investments that could effectively reduce firms’ exposure to external shocks.

Energy shocks therefore do not systematically induce banks with greater pre-existing exposure to restructure their loan portfolios towards firms with greater greening potential. Such a reallocation could contribute to greater macroeconomic resilience. This opens up space for economic policies to improve financing conditions for investments with the greatest potential to reduce dependence on fossil fuels. In this context, it would be sensible to focus not only on directly channelling financing towards already green firms, but also on improving the risk-return ratio of investments in the green transition of firms with credible decarbonisation potential, e.g. through investment incentives, public guarantees, co-financing or other risk-sharing instruments.

The energy shock in 2021–2022 worsened European industry’s relative cost position, as energy prices remain significantly higher than those of major global competitors.[29]

The energy shock substantially increased production costs in European industry and worsened its position relative to major global competitors.[30] Energy prices began to rise markedly already during the recovery of the global economy following the pandemic, with the war in Ukraine causing an additional cost shock. Although energy prices have declined significantly from their peaks in 2022, European industry remains exposed to considerably higher energy costs than its main competitors (Figures 5.1.1 and 5.1.2, left). According to IEA data, final electricity prices in 2025 for large energy-intensive industrial consumers in the EU were approximately twice as high as in the United States and more than half as high than in China. Natural gas prices also remain significantly above US levels.

Figure 5.1.1: Energy prices in selected economies

Sources: IEA, WB, SURS. Latest data right: July 2026.

Note: In the left chart, estimated electricity prices are presented. For the EU, prices for industrial consumers with annual consumption above 150 GWh are shown, considering compensation under the EU ETS. For the United States, the industrial price in Texas is used. The data for the United States and China are indicative and reflect average reported levels. In the right chart, reference market prices are presented.

In Slovenia, unfavourable developments in European energy markets led to a marked rise in energy import costs and a decline in the competitiveness of manufacturing enterprises.

The external energy shock was rapidly transmitted to import prices of energy and the overall import costs of domestic industry, and to a considerable extent also to export prices of industrial products and domestic inflation. Despite subsequent declines, all observed categories of prices remain significantly above pre-crisis levels this year[31] (Figure 5.1.2, right). Companies limited an even more pronounced pass-through of higher costs to export prices by reducing business margins, to maintain price competitiveness and market share in foreign markets.

Figure 5.1.2: Petrol prices and import and export prices in domestic industry

Sources: IEA, SURS, Banka Slovenije calculations. Latest data right: July 2026.

The deterioration in relative production costs is also reflected in broader competitiveness indicators. Price competitiveness of the Slovenian economy based on producer prices, measured by the real harmonised competitiveness indicator (PPI deflator), was around 10% weaker in the second quarter of this year compared to the five-year period preceding the energy shock, i.e. the period 2015–2019 (Figure 5.1.3, left). It worsened both in relation to euro area partners and even more so in relation to partners outside the euro area, the latter primarily due to the relative movement of domestic producer prices compared to prices in partner countries, rather than exchange rate developments. The comparable indicator for the group of Central and Eastern European euro area members (CEE) is estimated to have deteriorated somewhat less, by around 8%.

Domestic manufacturing enterprises also perceive a weaker competitive position. Following relatively favourable assessments in 2021 and at the beginning of 2022, survey responses regarding their competitive position deteriorated rapidly and have since remained in negative territory, both in EU markets and outside them (Figure 5.1.3, right).

Figure 5.1.3: Competitive position of manufacturing enterprises

Sources: ECB, SURS, Banka Slovenije calculations. Latest data left: Q2 2026, right: Q3 2026.

Note: In the left chart, price competitiveness based on producer prices – relative to a group of 37 trading partners, i.e. euro area members and 17 partners outside the euro area – is reflected by the RHCI indicator, deflated by the PPI. For the group of CEE euro area countries (BG, EE, HR, LT, LV, SK), the indicator is roughly estimated using a GDP-weighted average and does not include Slovenia. The range shows the movement of the indicator across all euro area member states.

Despite the deterioration in competitive position, export performance in manufacturing sectors was mixed, with more pronounced losses in global market shares than within the EU.

Changes in export market shares between 2021 and 2025 were not uniform, so it is not possible to establish a clear link between energy intensity and loss of market shares[32] (a similar pattern is observed in production; see Box 3.3). Among the more energy-intensive sectors, the metal production and chemical industry lost market share on the global market during the period observed, while market share increased in the production of non-metallic mineral products, as well as in the paper and wood industry (Figure 5.1.4, left; for developments in market shares of energy-intensive products, see also Box 5.2). At the same time, some less energy-intensive but export-relevant sectors, including the manufacture of electrical machinery and equipment and road vehicles, also lost market share.[33] In contrast, the pharmaceutical industry recorded a substantial increase in the market share.

A comparison of developments in the global market and the EU market shows that competitive pressures were stronger outside the European market. Energy-intensive manufacturing sectors largely maintained or increased their market share in the EU market during the period under review (Figure 5.1.4, right). The decline in market share for electrical machinery and equipment, and to some extent for road vehicles, was also more pronounced in the global market, in line with increased competitive pressure from producers in third countries, particularly China. As the energy shock affected European producers more severely, their relative cost position within the single market deteriorated less than that of European industry in the global market, i.e. vis-à-vis economies with more favourable energy costs.[34]

The results indicate that the impact of the energy shock on export performance cannot be considered separately from other competitiveness factors, such as technological complexity and product characteristics, productivity trends, the ability to pass higher costs on to sales prices, demand in key export markets, and changes in global supply and production chains. The energy shock can therefore be understood primarily as a common adverse cost factor, whose impact nevertheless varied across sectors depending on their structural characteristics and adaptability.

Figure 5.1.4: Market shares of Slovenian manufacturing sectors

Sources: UNCTAD, Eurostat, Banka Slovenije, Banka Slovenije calculations.

Note: Green bubbles indicate energy-intensive sectors, while gold bubbles represent certain major sectors of domestic industry. The size of the bubbles shows the sector’s share in Slovenian exports in 2025 (in %). Chemicals do not include pharmaceutical products. The market share of Slovenian goods exports in the global / European market is measured as the ratio between (nominal) Slovenian and global / European goods exports. In both cases, Banka Slovenije data are used for Slovenian exports.

Data from annual reports confirm that the energy shock had the most pronounced impact on the performance of export-oriented companies.

In line with energy price developments (Figures 5.1.1 and 5.1.2, left), energy costs of companies increased most strongly in 2022 and then gradually declined until 2025, with the share of energy costs in operating expenses approaching pre-crisis levels. Nevertheless, the aggregate moderation masks considerable differences between companies and sectors.

Export-oriented companies show greater exposure to energy shocks (Figure 5.1.5, left). Their energy cost fluctuations after 2021 were more pronounced than those of companies focused on the domestic market, and their share of energy costs in operating expenses remained higher. This is likely related to the sectoral composition of exporters, among whom activities with higher energy consumption play a more significant role, particularly certain manufacturing sectors, and transport and storage (Figure 5.1.5, right). For exporters, energy shocks therefore not only result in higher operating costs but also exert pressure on performance due to deteriorating cost competitiveness compared to partners in foreign markets.[35]

Figure 5.1.5: Energy costs and their share in operating expenses

Sources: AJPES, Banka Slovenije calculations.

Note: Energy costs include companies’ expenses for energy within the costs of goods, materials, and services. Domestic market-oriented companies are those generating more than 85% of their total sales revenue in the domestic market.

The vulnerability of companies to energy shocks depends not only on their energy intensity, but also on other business indicators that reflect their ability to absorb such shocks.

In energy-intensive manufacturing sectors, energy costs account for an above-average share of operating expenses. Nevertheless, energy intensity alone does not fully explain the vulnerability of individual sectors; risk assessment should also consider business indicators, productivity, indebtedness, and the share of equity in sources of funds.

In 2025 the most vulnerable energy-intensive manufacturing sectors were the paper industry and metal production, as both ended the year with a negative operating result, negative margins, and a less favourable capital structure (Figure 5.1.6). Negative operating margins indicate that companies in these sectors did not generate a positive result from core business, as sales revenue was insufficient to cover operating expenses. Any renewed increase in energy prices could therefore further deteriorate their operating performance and competitive position.[36]

In contrast, the chemical industry and the production of non-metallic mineral products, despite their high energy intensity, exhibit above-average levels of productivity and operating margins, as well as a more favourable financial structure compared to the average for all companies and the average for manufacturing activities (Figure 5.1.6). This indicates that high energy costs do not necessarily imply high vulnerability, provided they are accompanied by higher productivity, a greater ability to pass costs on to prices, or a stronger capital base.

Figure 5.1.6: Performance of energy-intensive manufacturing sectors in 2025

Sources: AJPES, Banka Slovenije calculations.

Note: In the left chart, net result is defined as the difference between net profit and net loss; net operating result as the difference between operating profit and operating loss; and labour productivity as the ratio between value added and the number of employees. In the right chart, energy costs show the share of energy costs in operating expenses; operating margins are defined as the ratio between net operating profit and net sales revenue; indebtedness as the ratio between total debt and liabilities to sources of funds; and equity in sources of funds as the share of equity in sources of funds.

The energy shock revealed considerable differences in the resilience of companies. Therefore, restructuring will also be important for maintaining competitiveness.

The results show that the energy shock of 2021–2022 manifested as an asymmetric cost shock across countries, companies, and sectors, while this year’s geopolitical tensions in the Middle East have again highlighted economies’ exposure to energy price fluctuations. Such shocks should therefore be understood as an important, but not the sole, factor affecting the competitiveness of export sectors. In the future, competitiveness will also depend on companies’ ability to reduce energy intensity, increase productivity, and shift towards more technologically advanced products. This will be particularly important if geopolitical risks and regional differences in energy prices remain elevated.

The presence of third countries on Slovenia’s most important export markets for energy-intensive products increased following the energy shock, but by 2024 this had not translated into a broader decline in Slovenia’s market shares or greater competitive overlap.

Slovenia’s exports of energy-intensive products (hereinafter EI products[37]) increased markedly in 2022 (Figure 5.2.1, left), which was likely partly driven by higher prices, as the intensification of the energy shock following the outbreak of the war in Ukraine led to a sharp increase in the prices of many EI products. In 2025, total exports of EI products remained markedly above the average for the 2017–2021 period but lagged behind the growth in total goods exports (Figure 5.2.1, left).[38]

The share of EI products in Slovenia’s goods exports declined in the following year after increasing in 2022 and then remained broadly unchanged (Figure 5.2.1, right). The decline was mainly driven by a reduction in the share of metals and metal products, among which in 2025 the share of iron and steel decreased the most.[39]

Slovenian exporters maintained their presence on the most important markets for EI products also after the energy shock.[40] Slovenia’s market share on the five most important export markets for EI products increased only slightly between the 2017–2021 and 2022–2024 periods, while the market share of EU exporters declined on average (Figure 5.2.2, left). At the same time, the market share of third countries (outside the EU) increased more markedly, with China recording the largest increase in presence, followed by the United States. Smaller increases in market shares were also observed for India, Turkey, Vietnam and South Korea. The increased presence of third countries was particularly pronounced for chemical products and iron and steel, but at the aggregate level it did not result in a decline in the market share of Slovenian exporters.[41]

Figure 5.2.1: Exports of energy-intensive products

Sources: SURS, Banka Slovenije, Banka Slovenije calculations.

Note: Due to the large share of re-exports of chemical products in Slovenia after 2020, the difference between total exports of chemical products and exports of chemical products excluding processing trade has been subtracted from total exports and exports of inorganic chemicals.

A more detailed analysis by product group also shows that the increased presence of third countries has so far generally not been associated with a decline in Slovenia’s market shares in key EI product groups (Figure 5.2.2, right).[42] Over the period under review, our market share for iron and steel, articles of iron and steel, wood and paper even increased slightly, although the presence of third countries in these groups strengthened. The market share of aluminium and aluminium products, which account for 17% of Slovenian exports of EI products and represent the largest individual group, also remained almost unchanged, declining by 0.1 percentage points. In this group, the share of third countries increased by 1.5 percentage points, while the share of the remaining EU countries declined by 1.3 percentage points, suggesting that Slovenia has so far not been among the more affected European suppliers. Market share changes for Slovenia were also relatively small in the other EI product groups, and systematic competitive pressures on Slovenian exporters have not yet become more pronounced.

For an additional assessment of competitive pressure, we compared the revealed comparative advantages[43] of Slovenia and six selected third countries – China, the United States, India, Turkey, Vietnam and South Korea. In this context, we define direct competitive overlap as EI products for which Slovenia has a revealed comparative advantage simultaneously with at least one of these countries.

Figure 5.2.2: Change in market shares of EI products on Slovenia’s five largest export markets

Sources: CEPII – BACI V202601, Observatory of Economic Complexity, Banka Slovenije calculations.

Note: Slovenia’s largest markets for EI product exports are DE, IT, HR, AT and HU. The selected third countries comprise the countries with the largest increases in market shares for EI products on these five markets: CN, US, IN, TR, VN and KR. The group of non-EU countries comprise all countries worldwide for which data are available, excluding EU Member States. In the left chart, the arrows indicate a break in the scale on the right axis. The market shares of EU countries excluding Slovenia are 66.8% (2017–2021 average) and 66.2% (2022–2024 average). The right chart shows the five most important EI product groups in Slovenia’s EI product exports.

The results indicate that competitive overlap did not increase during the period under review. The share of Slovenia’s EI product exports for which Slovenia has a comparative advantage in the same products as at least one of the third countries considered declined slightly in 2022–2024 compared with the period preceding the energy crisis. The share of such products in the total number of EI products also declined slightly., The increased presence of third countries on our main export markets therefore did not translate into either a larger share of export value or a larger number of products in which Slovenia has a comparative advantage alongside third countries. A more detailed analysis by product group indicates only a change in the structure of competitive overlap across individual product groups (Figure 5.2.3, left).

A similar picture emerges from the analysis of product complexity (Figure 5.2.3, right). In terms of export value, the share of competition increased for low-complexity products, while in terms of the number of products, the share of competition increased for high-complexity products.

Figure 5.2.3: Change in competitive overlap between Slovenia and selected third countries for EI products

Sources: CEPII – BACI V202601, Observatory of Economic Complexity, Banka Slovenije calculations.

Note: Change between the 2017–2021 and 2022–2024 periods, in percentage points. The share of export value is the share of the value of Slovenia’s EI product exports for which Slovenia has a comparative advantage in the same products as at least one of the third countries considered, while the share of products is the share of EI products with the same overlapping comparative advantages. Calculations are based on the 6-digit HS level. The selected third countries comprise the countries with the largest increases in market shares for EI products on Slovenia’s five largest export markets: CN, US, IN, TR, VN and KR. Product complexity: “low” corresponds to the bottom third, “medium” to the middle third and “high” to the top third of the distribution of product complexity in the given year.

The results presented in this box generally show that third countries increased their presence on Slovenia’s most important export markets after 2022, but this has so far resulted neither in a decline in Slovenia’s market shares nor in greater competitive overlap. The changes were small and mainly related to individual product groups, so it is not yet possible to speak of a general deterioration in Slovenia’s position on EI product markets.

Nevertheless, this does not mean that competitive pressures have not increased. The increase in the market shares of individual third countries indicate their stronger presence in certain product groups, particularly iron and steel and other metal products. Geopolitical developments also pose a risk of a more pronounced deterioration in the competitiveness of Slovenian exporters, as persistent differences in electricity prices between European and non-European producers could further increase competitive pressures on European export markets.

Oil prices have a significant impact on inflation dynamics and volatility. The intensity and speed of the pass-through from oil market prices to consumer prices vary over time and across countries, reflecting economic and institutional factors.

Oil remains one of the most important commodities. It is a key source of energy for transport, agriculture and households, while also being indispensable in numerous industrial sectors. Geopolitical tensions affecting global oil production and supply can therefore have a significant impact on inflation dynamics and volatility. They can lead to higher oil prices, which, through higher fuel prices and production costs, are also passed through to the prices of other goods and services, thereby putting upward pressure on headline inflation. Against the backdrop of heightened geopolitical tensions in the Middle East, crude oil prices have been highly volatile this year. Markets responded to the outbreak of the conflict in early March with an approximately 50% increase in Brent crude oil prices. Prices subsequently eased significantly, particularly following the US President’s announcement in mid-June that the Strait of Hormuz would be reopened. From mid-July onwards, however, prices rose again temporarily amid a renewed escalation in attacks.

Against the backdrop of pronounced volatility in global markets, which continued into August, we sought to assess how quickly changes in global prices are reflected in retail fuel prices and overall consumer expenditure, as well as to what extent the transmission differs across euro area countries. The price of fuel is in fact determined not only by the price of the underlying commodity, but also by refining and distribution costs and margins. In addition, the final price also includes excise duties, VAT and other levies, which provide governments with a policy instrument to mitigate the pass-through of global price changes to consumers (see Box 7.1). To perform such analysis, we used harmonised weekly data on oil product prices published by the EC as part of the Weekly Oil Bulletin. These data show that movements in retail petrol and diesel prices in the euro area follow developments in Brent crude oil prices (Figure 6.1.1)

Figure 6.1.1: Retail fuel prices in relation to Brent crude oil prices

Sources: ECB, Weekly Oil Bulletin. Latest data: 24 August 2026.

The long-term impact of higher wholesale oil prices on retail motor fuel prices is comparable across euro area countries.

The analysis focuses on diesel and petrol prices[45], while daily data on Brent crude oil price developments were aggregated into weekly data so that the resulting weeks correspond to the reporting weeks used in the Weekly Oil Bulletin. [46] As a first step, for each fuel we estimated how quickly changes in oil markets are reflected in its pre-tax price. In addition to the price of crude oil, this price includes refining, transport and storage costs, the costs of mandatory biofuel blending, as well as the margins of refineries, transport companies and retailers.

To estimate the pass-through, we used data covering the period from 2005 to the end of July 2026 and an Error Correction Model (Engle and Granger, 1987). For each euro area country[47], we estimated the following long-run equation:

Here p_t denotes the pre-tax price of fuel, either diesel or 95-octane unleaded petrol, expressed in euros per litre, while b_t denotes the price of Brent crude oil, expressed in euros per barrel. To account for the changed geopolitical conditions following the outbreak of the war in Ukraine, we also included a dummy variable for all observations from January 2022 onwards (Figure 6.1.1).

The results show that a 10% increase in Brent crude oil prices leads, in the long run, to an average increase of 6.5% in pre-tax diesel prices and 6.2% in pre-tax petrol prices in the euro area. In Slovenia, the estimated elasticities are somewhat higher, at 7.2% for diesel and 6.8% for petrol. Differences across countries are relatively small: long-run elasticities are quite homogeneous, ranging from 5.4% to 7.2% across both fuels.

Most of the pass-through of an oil price shock occurs within the first two weeks, with the pass-through being faster in countries with more developed and competitive markets.

Given some lag in the pass-through of changes in crude oil prices, we sought to determine whether the speed of pass-through is also comparable across countries in the short run. We therefore linked short-term changes in retail fuel prices to changes in global oil prices and to the speed of adjustment towards the long-run relationship, as captured by the coefficient α:

This allowed us to estimate the impact of an oil price shock on pre-tax fuel prices. We simulated the path of pre-tax fuel prices under two scenarios: (1) a permanent 10% increase in Brent crude oil prices and (2) no change in Brent crude oil prices. The results show that most of the pass-through occurs within the first two weeks following the shock. By the end of the 20-week period, the price of a litre of fuel in the euro area is, on average, around 5.0% higher, compared with 6.5% in Slovenia (Figure 6.1.2). Thus, almost two-thirds of the shock is passed through to pre-tax fuel prices.

Slovenia’s relatively higher pass-through compared with the euro area average may be related to the larger role of the refined product price, which forms the basis for retail fuel pricing. In addition, Slovenia is one of the few euro area countries where distributors’ margins are regulated. These margins are set at a relatively low level and therefore account for a smaller share of the total pre-tax fuel price, which also limits the scope for adjustment in response to shocks. There are also some differences across euro area countries, particularly during the first two weeks. A faster pass-through is observed in Belgium, France, Luxembourg and Germany, while the pass-through is somewhat more delayed in Slovenia, Cyprus, Ireland, Croatia and Slovakia. These cross-country differences can be related, among other factors, to the way prices are determined (market-based or regulated), the degree of competition in each country, and the time lag between fuel delivery and retail sale. These differences primarily affect short-term adjustment dynamics, while the long-run relationship between Brent crude oil prices and pre-tax fuel prices remains broadly comparable across countries.

Figure 6.1.2: Response of pre-tax fuel prices to a 10% increase in Brent crude oil prices

Sources: Weekly Oil Bulletin, Banka Slovenije calculations.

The pass-through to retail prices, which include taxes and other levies, is comparatively smaller.

Compared with pre-tax prices, the pass-through of higher Brent crude oil prices to the retail prices paid by consumers is, as expected, more than half as low (Figure 6.1.3). Retail prices also include taxes and other levies, which means that the share of the underlying commodity in the final price is proportionally lower. In the euro area, taxes and other levies account for approximately 39% of the final price, while VAT accounts for 18%; in Slovenia, the corresponding shares are 38% and 22%, respectively. In Slovenia, particularly in recent years, the government has adjusted the level of taxes and other levies on several occasions with the aim of mitigating the pass-through of market developments to consumers (see Box 7.1). This may also have contributed to the comparatively more muted response of retail prices to the oil price shock. According to the model estimates, approximately one-fifth of the price shock is passed through to final retail prices.

Cross-country differences in pass-through also contribute to differences in measured inflation in the short term.

The methodology used to monitor fuel prices specifies that prices of petroleum products are monitored from the 1st to the 25th day of each month. This means that, in countries with slower pass-through, a spike in crude oil prices may be reflected in measured inflation only in the following month rather than in the current month. In 2026, motor fuels account for an average of 3.7% of household expenditure in the euro area, compared with a considerably higher share of 5.8% in Slovenia. An oil price shock contributes directly to headline inflation through higher fuel prices: a 10% increase in global oil prices would, through this channel alone, raise headline inflation by 0.1 percentage point. The shock also affects inflation indirectly through higher prices of food, services and other goods, particularly via higher transport and production costs.

Figure 6.1.3: Response of retail fuel prices to a 10% increase in Brent crude oil prices

Sources: Weekly Oil Bulletin, Banka Slovenije calculations.

The fiscal costs of energy support measures following the outbreak of the war in the Middle East have so far been moderate and significantly lower than after the start of the war in Ukraine.

In recent years, fiscal policy has faced a series of shocks. Among the most prominent are the COVID-19 pandemic, extreme weather events, and two major energy crises – the first following the outbreak of the war in Ukraine in 2022 and the second after the onset of the war in Iran this year. Both events significantly contributed to the rise in global energy prices (see Box 5.1). Slovenia, like other EU Member States, responded to rising energy prices and high import dependence by adopting a range of measures to limit the pass-through of higher energy prices to domestic prices and to contain inflationary pressures (see Box 6.1). These measures had significant fiscal implications, as they increased the general government deficit and, consequently, the need for financing and the level of general government debt.

The fiscal costs of this year’s energy shock, associated with the war in the Middle East, are so far considerably lower than those following the start of the war in Ukraine. The fiscal costs of energy and inflation compensatory measures to support households and firms in Slovenia were at their highest in 2022–2023, worsening the general government balance by approximately 2.6% of GDP, which is comparable to the scale of measures implemented in euro area countries (Figure 7.1.1, left).[50] In 2026, the fiscal cost of measures adopted after the outbreak of the war in the Middle East is estimated at around 0.3% of GDP, while in the euro area the figure is around 0.1% of GDP.[51] Should uncertainty in the international environment persist, additional measures may be adopted.

Fiscal measures significantly mitigated the short-term impact of the energy crisis on inflation, while their effect on economic activity was relatively limited.

According to our empirical estimates, fiscal measures such as those adopted during both energy crises, amounting to 1% of GDP, reduce inflation by an average of 0.5 percentage points and increase real GDP growth by 0.2 percentage points. The estimated effect on GDP is at the lower end of the usual range of government expenditure multipliers. This is primarily related to the nature of the measures, which were aimed at limiting the pass-through of higher energy prices to final prices and preserving the purchasing power of households, rather than directly stimulating aggregate demand.

Figure 7.1.1: The amount of energy measures in Slovenia and the euro area, and excise duties on petrol and diesel in Slovenia

Sources: ECB, Ministry of finance, Portal Energetika, Banka Slovenije estimates and calculations.

Note: The assessment of measures to mitigate the energy crisis and rising prices for the euro area is taken from the ECB Economic Bulletin of August. The assessment of measures for 2026 for the euro area is based on the Eurosystem projections published in June, while for Slovenia, all measures adopted up to the end of August 2026 are taken into account. Consequently, this assessment is somewhat higher than at the time of the June projections, when the measures were estimated at 0.2% of GDP. The gross value of the measures includes all adopted energy-related measures, whereas the net value takes into account that some euro area countries have also implemented measures to finance these interventions.

These measures primarily served to mitigate the increase in consumer prices. During their period of validity, such measures limit inflation; however, once they expire, some of the suppressed price pressures may re-emerge, resulting in somewhat higher inflation. Nevertheless, it is reasonable to assess their effectiveness mainly from the perspective of short-term mitigation of the inflation shock and the protection of purchasing power.

The measures adopted have often not followed recommendations to be temporary and targeted, which would allow for better containment of fiscal costs.

International organisations recommend that measures adopted in response to energy shocks should be temporary, targeted, and tailored. [52] Broad and prolonged mitigation of price pressures reduces incentives for energy savings and results in higher fiscal costs. Despite these recommendations, measures implemented in practice have often been general and less targeted, as they have focused on broad-based price mitigation for all users rather than direct support for vulnerable groups and energy-intensive enterprises.

In Slovenia, the measures adopted this year in response to the energy crisis have primarily taken the form of reductions in various fuel duties, which are general and not specifically targeted at the most vulnerable households or energy-intensive enterprises. The largest fiscal cost arises from reductions in excise duties. This approach was also used during the 2022 energy crisis and the pandemic, when excise duties on energy products were similarly reduced, but subsequently increased once conditions stabilised (Figure 7.1.1, right).[53] Other measures adopted this year are temporary, including a two-month exemption (from 28 July to 28 September 2026) from the environmental levy on CO2 emissions and the energy efficiency contribution on regulated fuels and heating oil.

In contrast to this year, the range of measures during the energy crisis following the outbreak of the war in Ukraine was broader and at least partly targeted and temporary. In 2022, measures were distributed roughly equally between reductions in indirect taxes, cash social transfers, and subsidies, while in 2023 subsidies predominated. Targeted measures during this period included transfers to the most vulnerable groups, such as pensioners with low pensions.

The share of environmental taxes in GDP declined during the mitigation of energy crises.

Environmental taxes, the majority of which are energy taxes, declined significantly during the pandemic and after the outbreak of the war in Ukraine (Figure 7.1.2).[54] This trend has been observed both in Slovenia and across the EU. Over the past two decades, the share of environmental taxes in GDP was lowest in 2023 and remained at a similar level in 2024, while data for 2025 are not yet available. This development is consistent with the structure of support measures adopted during these economic shocks, as such measures were often aimed at reducing the burden of environmental taxes.

Environmental tax revenues in Slovenia exceed the EU average. Between 2009 and 2019, this excess amounted to more than one percentage point of GDP, peaking at around 1.7 percentage points in 2015 and 2016, before gradually declining to 0.75 percentage points of GDP by 2024. In Slovenia, more than half of environmental taxes are paid by households, compared with less in the EU (43% in 2023 and 2024), with this share declining over time in both economies.

A reduction in environmental taxes is an effective short-term measure for mitigating the effects of an energy shock; however, it may be problematic from the perspective of long-term environmental objectives. Lower taxation of energy products reduces their final cost and thereby weakens the price signal – that is, the information that higher prices would otherwise provide to encourage households and firms to use energy more efficiently and to switch to more environmentally friendly sources.[55]

Figure 7.1.2: Environmental tax revenue in Slovenia and EU

Source: Eurostat.

Greater flexibility in complying with EU fiscal rules is envisaged for energy-related measures.

In August 2026, the European Commission (EC) adopted guidance on fiscal flexibility for energy security measures, thereby extending the national escape clause from fiscal rules, which was initially intended only for increased defence expenditure. Under the new guidelines, measures adopted since 28 February this year – i.e. since the start of the war in the Middle East – will be taken into account. This option is intended to finance urgent investments in energy resilience and the transition to clean energy, as well as to support households and businesses to reduce their reliance on fossil fuels. At the request of Member States, such measures may be excluded from the assessment of deviations from the recommended net expenditure path. Additional flexibility is limited to 0.3% of GDP annually, or 0.6% of GDP cumulative over the period 2026–2028, and remains within the overall of 1.5% of GDP cap. For deviations from fiscal commitments due to energy measures, Member States – similarly to the case of defence expenditure – will need to apply to the EC, which will assess the request, with final approval by the EU Council.