According to the Institute of Macroeconomic Analysis and Development of the Republic of Slovenia, economic growth in the first half of the year was driven by growth in private consumption and a large contribution from the change in inventories. In the second half, this started to slow down a bit in the export-led part of the economy, while the Institute of Macroeconomic Analysis and Development of the Republic of Slovenia expects a decline in private consumption, mainly due to a decline in the purchasing power of the population in a high inflation environment. Of the internal risks, labour shortages are the most pressing in the short term, according to economist Mark Pahor. “Slovenia is practically at full employment, but due to bureaucratic obstacles and relatively high taxation of labour, we are not particularly attractive for foreign workers,” he told the Slovenian Press Agency.
According to estimates by domestic and foreign institutions, the Slovenian economy will achieve gross domestic product (GDP) growth of between 5 and 6.2 percent this year. “The relatively high growth stems from the carry-over effect from 2021, which relates to the recovery of the economy after the epidemic of COVID-19, and a marked acceleration in the second half of last year,” the Bank of Slovenia said. But growth has already slowed noticeably in the third quarter of this year amid uncertainties in the international environment and rising inflation. In the first half of the year, economic growth was driven by growth in private consumption and a high contribution from the change in inventories, according to the Institute of Macroeconomic Analysis and Development of the Republic of Slovenia. In the second half, this started to moderate in the export-led part of the economy, while the Institute expects a decline in private consumption, mainly due to the declining purchasing power of the population in a high-inflation environment.
Next year, growth will moderate to 1.4 percent, according to the Institute’s estimates, and according to forecasts by some foreign institutions, it will be slightly higher at 1.8 percent. But the Bank of Slovenia, which was the last of these institutions to publish a forecast, lowered it to 0.8 percent. Growth is expected to remain at low levels in the first half of 2023, and the economy should gradually recover from the second half of 2023 onwards as the international environment gradually stabilises and price growth moderates. “The divergence in forecasts mainly reflects the huge uncertainty and the rapid pace of developments affecting assumptions. A few weeks of difference in the forecast production can change the forecasts significantly, hence the large differences. What is important is that, despite the large differences, the forecasts remain positive, both for economic growth and for inflation deceleration,” economist Marko Pahor told the Slovenian Press Agency.
Most institutions forecast low real economic growth for Slovenia
The median growth estimate for 2023 is 1.3 percent, while that of the Chamber of Commerce and Industry of Slovenia is 1.1 percent. “Most institutions forecast low real economic growth for Slovenia while they still see growth in the labour market. The Chamber of Commerce and Industry believes that the number of people in employment will fall slightly, but the drop will not be dramatic. Much of the economic damage will be mitigated by support measures,” Bojan Ivanc, chief economist at the Chamber of Commerce and Industry, told the Slovenian Press Agency. Fears of a recession have emerged as the energy situation continues to worsen. “The likelihood of a recession was a real possibility when such forecasts were made for Germany, which is the largest trading partner. The current forecasts for Germany are less pessimistic, so the possibility of a recession in Slovenia is also receding,” Pahor said. Ivanc also believes that there will be no technical recession. “We expect GDP growth in the fourth quarter due to the growth in inventories. Some other data are also more optimistic, such as the rise in the economic climate,” he said.
Of the internal risks, Pahor said that the most pressing in the short term is the labour shortage. “Slovenia is practically fully employed, but due to bureaucratic obstacles and relatively high taxation of labour, we are not particularly attractive to foreign workers,” he explained. In the long term, the highest risk for us is the ageing population and all that that entails, he added. The main risk for the economy, in Pahor’s view, remains geostrategic developments and, specifically, their impact on energy prices. “Slovenia can do little by itself to help here, and even the state’s measures to lower prices for businesses and households have a limited reach and are by no means a long-term solution,” he warned. The real problem is the fact that the European Union as a whole is facing the challenge of paying more for energy than the rest of the world and is, therefore, “losing competitiveness, and Slovenia with it.”
Even with measures, the price of energy will still be too high for companies’ existing cost models
The impact of the energy price regulation and the announced energy price subsidies on the economy would thus be positive, especially for the competitiveness of Slovenian companies that export a lot, Ivanc said. “Thus, the impact on moderating inflation is greater in other countries than in Slovenia in the case of industry. It is different for the trade sector. Here, regulation has an impact on improving the performance of trade, but there is no legal obligation for companies to pass on that aid to final prices in the form of a reduction,” he added. According to Pahor, the economy is rightly pointing out that the measures will still make the price of energy too high for companies’ existing cost models, while on the other hand, such measures are very costly for the state and, therefore, unsustainable in terms of prices. “The measures certainly help, as, without them, we would have seen the kind of liquidations and bankruptcies that the measures are now preventing,” he said. However, Ivanc believes that measures to support the labour market and to support liquidity in the economy will also be important next year.
More money for electricity, food and heating, less for gifts
“The last quarter was full of promotional offers on basic necessities to help retailers adjust to the lower spending power. These reserves are no longer available in stores and from our suppliers. In the future, sales promotions will be less frequent. However, this trend is very much dependent on how the cost of electricity is resolved for medium and large companies. At a meeting with the Prime Minister last week, we pointed out that a fivefold, sevenfold increase in the price of electricity cannot be covered from our own reserves and that retail prices will have to be increased, which is a major risk of increasing inflation. The Prime Minister has promised to do everything possible to find a compromise solution so that the pressure on prices will not be so high. If a suitable solution is found, then retailers and suppliers will not be in such a difficult situation,” Mariča Lah, President of the Slovenian Chamber of Commerce, told the Delo newspaper, summarising retailers’ observations that consumers have limited budgets for buying gifts and that impulse purchases are no longer an option for them. “We are finding that some people with low incomes are finding it difficult to cope with inflation and price rises and do not have enough money left over to spend on gifts, as they have spent more money on electricity, food, and heating this year,” said Aljoša Domijan, Director of Gambit Trad, which operates the Slovenian online shop EnaA.