Slovenia growth forecast
(Source: OECD)

Slovenia’s growth forecast upgraded to 5.9% in 2021

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The Organisation for Economic Cooperation and Development (OECD) has significantly upgraded Slovenia’s growth outlook. The Paris-based organisation projects the South East European country’s economy to expand by 5.9% this year, up from its May forecast of 3.5%, The outlook for 2022 was revised by 0.8 percentage points to 5.4%. Growth is projected to moderate to a still robust 3.2% in 2023.

Domestic demand will be the main driver of growth while higher real incomes will boost private consumption. Investment will increase on the back of increasing capacity constraints and additional EU funds. The buoyant labour market will drive the unemployment rate below pre-pandemic levels from the end of 2021, OECD said. A faster resolution of international supply-chain problems would also benefit export activity and strengthen growth.

However, headline inflation will rise, and reach 3% by 2023, reflecting high energy prices, supply side constraints and a tighter labour market, the organisation warned. Slovenia’s consumer prices advanced by 4.6 percent year-on-year last month, following a 3% rise in October. It was the highest inflation rate since October 2008 as inflation quickened for transport, amid higher prices of petroleum products, heat energy and motor cars.

Meanwhile, Slovenia’s economy grew 5% year-on-year in the third quarter of 2021, easing from a 16.3% growth in the previous period. There was a slowdown in household consumption; public spending; gross fixed capital formation; and changes in inventories.

Also, net trade contributed negatively to the GDP, as imports increased by 19.9 percent (vs 36.1% in Q2) while exports grew at a slower 10.6% (vs 30.5%). International supply chain bottlenecks are weighing on exports, forcing car suppliers to temporarily halt production at the end of the summer. Business confidence continued to deteriorate for a third consecutive month in October.

The organisation sees Slovenia preparing public finances for upcoming challenges the following ways:

“A more growth-friendly tax mix through further reductions in labour taxes financed by higher property and indirect taxation, would help raise long-term growth prospects. Productivity growth would benefit from stronger competition, through continued privatisation efforts, and a more flexible wage-setting process to help enhance reallocation of labour towards more productive sectors”

OECD also sees global growth moving along at a brisk pace of 4.5% in 2022, moderating to 3.2% in 2023. “Striking imbalances have emerged… These imbalances create uncertainty and more downside than upside risks… Inflation is also on everybody’s minds and there is a lot of uncertainty about central banks’ reactions…The next big concern is the risk that policy makers fail to act on lessons from the crisis… They must balance prudence, patience, and persistence while developing new and improved plans to transform economies in ways that will build much better resilience to the risk of rising imbalances” OECD concludes.