Central bank projects sharp slowdown for Slovenia's economy

"The prospects of weaker growth compared to previous forecasts are largely the consequence of high uncertainty, persistent inflationary pressures, and weaker economic activity in the international environment," vice-governor Tina Žumer said on Friday.

Foreign demand has remained robust so far this year but it projected to "slow substantially" next year given the latest GDP trends in Slovenia's largest trading partners.

These trends are accompanied by interest rate hikes by central banks and consequently less favourable borrowing conditions.

An additional factor in 2023 will be weaker domestic demand and a decline in capital spending. However, this will also reduce imports and help reverse the trade balance so that exports are expected to make a net contribution to growth for the first time in two years.

Inflation is projected to reach 9.3%, having returned above the 10% mark in November, before slowing to a still high 6.8% next year. In 2024 consumer prices are projected to rise by 4.2%.

Inflation is estimated to have peaked in July. But core inflation, which excludes energy and food prices, continues to rise and "we estimate it will peak in March next year," said Arjana Brezigar Masten, the head of the central bank's analytical centre.

Inflation is broad-based. It is driven by high energy and food prices, though energy inflation is being mitigated by government measures.

In the absence of price measures, inflation would be 0.7 percentage points higher this year and two percentage points higher in 2023.

Slovenia has had robust job growth that is expected to top out at 2.4% this year. Next year it is projected to slow down substantially, to a still positive 0.4%.

In 2024 and 2025, however, job growth is projected to be higher, at just under a percent, despite slower economic activity. Growth would be even brisker if Slovenia's job market were not so tight, the central bank said.