GDP growth is projected to slow to 1.5% in 2023, reflecting weak domestic and external demand. The labour market is expected to remain tight, fuelling stronger wage growth and contributing to inflationary pressures. Growth will strengthen to 2.6% in 2024 as inflationary pressures gradually recede.
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Slovenia’s strong post-pandemic recovery has been hit by strong headwinds from the war in Ukraine, higher energy prices, and supply chain bottlenecks. At the same time, the strong labour market performance has led to historically high employment, low unemployment and widespread labour shortages. Thus, inﬂation will remain high as growth slows. Looking further out, population ageing will lead to a smaller and older workforce, while the number of pensioners increases. Financing the ﬁscal costs of population ageing requires containing ageing-related spending increases in the pension, health and long-term care systems.
Several long-standing vulnerabilities risk slowing down the recovery. Lowering labour taxes should be a priority. Currently, low-skilled workers have few incentives to enter employment or increase work efforts as high-income taxes erode income gains. Another concern is the relatively high share of state-owned enterprises, present across all sectors, which hinder competition and reallocation of resources to most productive firms during the recovery.
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