Economic Analysis
Slovenia

Slovenia

Population 2.1 million
GDP per capita 25,992 US$
A4
Country risk assessment
A1
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 4.4 3.2 -7.4 4.9
Inflation (yearly average, %) 1.9 1.7 0.0 0.9
Budget balance (% GDP) 0.7 0.5 -9.5 -6.2
Current account balance (% GDP) 6.0 5.7 5.0 4.6
Public debt (% GDP) 70.3 65.6 82.6 80.4

(e): Estimate (f): Forecast

STRENGTHS

  • Eurozone member
  • High level of political and social development
  • Diversified economy
  • Integrated in the European production chain
  • External accounts in surplus
  • Efforts to clean up the banking sector
  • Before the pandemic, public debt was on a downward trend

WEAKNESSES

  • Small domestic market
  • Ageing population and demographic growth at a standstill, resulting in a labour shortage
  • Dependent on regional economic conditions and automobile
  • Inefficient state-owned companies
  • Slow administrative and judicial procedures
  • Fragile and disparate coalition at the head of government

RISK ASSESSMENT

Heading for a rebound whose size will depend on regional conditions

Economic activity will pick up again in 2021 after an unprecedented fall in 2020 linked to the pandemic. Although Slovenia posted strong health results during the first wave of the pandemic in the spring of 2020, this was because it closed non-essential shops for over a month, which led to a 14% drop in activity in the first semester. The second wave of the pandemic in the autumn hit the country harder, forcing it to shut non-essential shops again, derailing the recovery that had begun in the summer of 2020. Buoyed by the gradual improvement in the health situation in 2021, economic activity should rebound vigorously, but without recouping all the losses recorded in 2020. Households, whose purchasing power was supported during the crisis by measures such as the short-time work scheme, which limited the rise in the unemployment rate (5.2% mid-2020, +1 point over one year), and support for self-employed people, will consume some of the sizeable savings built up during the crisis (savings rate of 29% in mid-2020, compared with 9% at the end of 2019). Nevertheless, because the economy is very open (exports of goods and services represent 88% of GDP), the rebound will remain largely dependent on the economic situation of neighbouring countries. Slovenia is integrated within German and Austrian production chains for automobiles and electrical and electronic equipment, and in Swiss chains for the pharmaceuticals industry, and generates more than half of its goods exports from these four sectors. While the major tourism sector (direct income estimated at 6% of GDP) should rebound in 2021 after recording a 70% drop in arrivals of foreign tourists over the first nine months of 2020 (slightly offset by a 50% increase in domestic overnight stays), the size of the recovery will largely depend on the vaccine timetable and ultimately on freedom of movement in Europe. To support the rebound, the government will boost public investment (+2 points of GDP compared with 2020) in transport, the environmental transition and digital transformation.

 

Budget 2021: public investment to stimulate activity

After being hard hit by the economic and health effects of the pandemic in 2020, the public accounts will remain largely in deficit in 2021. However, they should improve slightly due to the increase in tax revenues made possible by the rebound in activity. While some support measures for households (short-time work scheme, aid for self-employed people) and businesses (social security and tax deadlines deferred, state-guaranteed loans) will be extended in line with the health situation, the public deficit will, this time, be mainly attributable to the sharp rise in investment. The public debt should stabilise or even resume the downward trend recorded between 2015 and 2019, which gave the country some room for manoeuvre in terms of public finances. Although 61% owned by non-residents, the public debt was solid at the end of 2019, since 99.9% of it was denominated in euros and only a small part (3%) matured during the year. The banking sector, which was rocked by a crisis in 2012-2013, looks much sturdier this time around, thanks to measures taken by the authorities (bad bank set up, recapitalisations, restructuring and privatisations) in the years preceding the pandemic. The share of doubtful loans thus remained very low at the end of July 2020 (1.9%, against 32% five years earlier) and profitability ratios were more resilient than the Eurozone average. Moreover, the country will continue to post a significant current account surplus. While the balance of goods is balanced, the services balance consistently shows a significant surplus, thanks to transport and tourism, which should rebound in 2021. The income balance is in deficit due to the repatriation of dividends generated by substantial inward foreign investments (2.3% of GDP in 2019). External debt rose sharply last year (from 91% of GDP at the end of 2019 to 105% in August 2020) due to the government and the central bank, which account for 60% of commitments, but should start to fall again from 2021.

 

Prime Minister Janša returns thanks to a disparate coalition

Following the fall of Marjan Šarec's centre-left coalition government in January 2020, Conservative Prime Minister Janez Janša (SDS, 26 seats) returned to power, after serving two terms in 2004-2008 and 2012-2013, as part of a coalition with the Modern Centre Party (SMC), the Christian Democrats (NSi) and the Democratic Party of Slovenian Pensioners (DeSUS). The coalition initially held 48 of the 90 seats in parliament, but two SMC MPs defected in May. After this, in order to strengthen its one-seat majority, the government signed a cooperation deal with the nationalist SNS party and representatives of the Italian and Hungarian minorities. While this should allow the government to hold out until the next elections scheduled for June 2022 at the latest, the disparate make-up of the coalition and the economic situation will preclude any structural reforms between now and then. In November 2020, the country gave its support to countries blocking the adoption of the European Recovery Plan (under which Slovenia would receive the equivalent of 11% of GDP, a third in grants) to protest the mechanism linking the disbursement of funds to respect for the rule of law. 

 

Last updated: February 2021

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