Slovenia: Internal drivers to stabilize growth outlook amid turbulent environment

1Q25 GDP declined by 0.7% y/y, thus delivering first negative performance since 4Q20 – detailed structure revealed modest private consumption growth, while investments failed to deliver signs of rebound as figure remained in red. Negative net exports contribution was strong drag on the overall performance, shaving off 1.4pp from the headline figure. Looking ahead, private consumption should keep steady growth momentum, coupled with the anticipated investments pick-up. Challenges regarding the external demand would continue to weigh on the export outlook. Following disappointing 1Q25 output, we see FY25 growth forecast around 1.5% mark, with risks remaining present and linked to external demand uncertainties.

While inflation was on moderate rising trajectory in recent months, latest figure for May brought headline figure back below 2% mark i.e. at 1.8% y/y – going forward, persistent services pressures and gradually shifting base effect (expected from 2H25), suggest inflation remaining on somewhat higher grounds, with recent food prices developments also adding to the pressures. Following better than expected budget performance in 2024, fiscal position is expected to remain overall stable, albeit uncertainties regarding international situation and public sector wages and pension reforms imply certain risks when it comes to budget execution, suggesting higher deficit targets in 2025-26 period. Rating developments were favorable, where Fitch affirmed Slovenia’s ‘A’ rating while upgrading the outlook to positive, Moody’s reaffirmed it at ‘A3’ (positive outlook), while S&P upgraded it to ‘AA’ (stable outlook).

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