Slovenia: Strong start to 2026, but external risks remain

GDP entered 2026 on a strong footing, with headline figure growth accelerating to 3% y/y in 1Q26. Once again, domestic demand remained dominant growth driver, while negative inventories and external trade contribution weighed on the overall performance. Looking at the outlook, domestic demand is expected to stay in the lead, with both investments and private consumption maintaining steady growth momentum, albeit the latter one is facing certain headwinds amid rising inflation pressures. On the other hand, challenges regarding external demand developments should continue to weigh on the export outlook, thus keeping the net export contribution diminished in the period ahead. Stronger than expected entry into 2026 prompted modest upward revision of our current FY26 GDP forecast (2.0%), though risks remain present and predominately linked to challenging environment and geopolitical uncertainties.

Inflation remained relatively contained at the beginning of 2026, averaging 2.7% y/y in the first quarter. However, price pressures intensified going into 2Q26, with pick-up primarily driven by higher energy and services prices. Looking ahead, we expect service-sector pressures to persist, while geopolitical tensions and uncertainty surrounding energy prices continue to represent an upside risk to the near-term inflation outlook. Bottom line, we see CPI averaging at 3.4% mark in 2026. The fiscal deficit widened to 2.5% of GDP in 2025, driven by stronger expenditure growth – gap is seen gradually moving closer to the 3% of GDP threshold over the 2026–2027 period, reflecting slower revenue dynamics and rising expenditures pressures.

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