Slovenia: Domestic demand against external headwinds

After disappointing entry into 2025, GDP delivered expected improvement as headline figure posted mild 0.7% y/y increase in 2Q25, where detailed breakdown revealed more favorable domestic demand performance, especially on the private consumption side, while strong negative contribution came from the net exports. As far as 2H25 is concerned, we see private consumption keeping steady momentum, coupled with the anticipated improvement of the investment profile, while challenges regarding the external demand would continue to weigh on the export outlook. Following flattish 1H25 performance, we see FY25 growth forecast few notches above 1.0% mark, with risks remaining present and linked to external demand uncertainties.

Following average 1H25 CPI at 2% y/y, going into 2H25 we saw somewhat intensifying pressures as headline figure growth accelerated to 3.0% y/y in August i.e. marking its highest YTD print. Looking ahead, persistent service pressures underpinned by ongoing wage growth and labor market trends, coupled with the shifting base effect, suggest inflation remaining on somewhat higher grounds. Additionally, recent food prices movements were also adding to the pressures. FY25 inflation is expected around 2.5% mark. Fiscal position is expected to remain overall stable, albeit 2025-26 deficit targets are seen at somewhat higher level as uncertainties regarding international situation and public sector wages and pension reforms imply certain risks when it comes to budget execution.

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