OECD Economic Outlook, Volume 2025 Issue 1

Slovenia

GDP is projected to grow by 1.6% in 2025 and 2.4% in 2026, driven by domestic demand. Strong wage growth will support private consumption, and investment will gradually rise with government spending on post-flood reconstruction and EU funds. Risks are tilted to the downside and include rising trade tensions, stronger-than-expected wage growth, reduced competitiveness, and prolonged inflation. Upside risks involve faster reconstruction efforts and increased EU spending that boosts investment activity.

Fiscal policy will be expansionary in 2025 and 2026 due to increased defence and reconstruction spending. Structural measures include higher long-term care spending funded by a higher social security contribution rate. In addition to the upcoming pension reform, further tax policy reforms are needed for fiscal sustainability in the long‑term, while investment would benefit from supply-side reforms such as easier immigration processes and streamlined planning and permitting.

Economic activity has slowed

Economic activity declined by 0.8% quarter-on-quarter in the first quarter of 2025, driven by negative net exports, while domestic demand supported growth. Recent indicators are mixed: consumer and business sentiment improved slightly to long-term averages in May, but both industrial production and retail trade turnover (without automotive fuels) declined by 1.2% month‑on‑month in March. The labour market remains tight, with a 3.2% unemployment rate in March, which, together with rising public wages due to a public pay reform, is fuelling strong wage growth. Hourly labour costs rose 6.8% year-on-year in the fourth quarter of 2024, contributing to annual service inflation of 3.8% and annual core inflation of 2.5% in April, with annual headline inflation at 2.3%.

Slovenia

1The job vacancy rate measures the proportion of total posts that are vacant, expressed as the ratio of the number of job vacancies to the number of occupied posts plus the number of job vacancies.

Source: Statistics Slovenia; and OECD Economic Outlook 117 database.

Statlink

Slovenia: Demand, output and prices

Statlink

Export growth was improving due to recovering external demand before US tariffs on EU goods were announced, with merchandise exports growing 1.7% year-on-year in the first quarter of 2025. Direct trade exposure to the United States is limited, with exports of goods to the United States making up 2% of GDP in 2024. However, Slovenia is also exposed through European value chains. About 80% of exports to the United States are pharmaceuticals, currently not targeted. The impact of euro area monetary easing on financial conditions has now passed through, with loans to the non-banking sector growing by 7.6% over the year to March.

Fiscal policy will be expansionary

The fiscal policy stance is expected to be expansionary in 2025 and 2026, with fiscal easing of 0.6% of GDP over 2025-26 driven by higher defence and post-flood reconstruction spending. Still, public debt (according to Maastricht definition) is projected to decline to 66% of GDP by 2026. Reconstruction spending is funded by a temporary increase in the corporate income tax rate and the introduction of a temporary bank levy. The government announced a rise in defence spending, to 2% of GDP in 2025 and 3% of GDP in 2030. Structural measures include higher spending on public wages by 0.5% of GDP in both 2025 and 2026 due to public sector wage reforms and increased long-term care spending by 0.3% of GDP in 2025 and 0.7% of GDP in 2026, funded by a 2 percentage point increase in the social security contribution rate.

Economic activity is set to strengthen

Growth is projected to reach 1.6% in 2025 and 2.4% in 2026, driven by strengthening domestic demand. Private consumption will benefit from a tight labour market and strong real wage growth. Investment will gradually rebound due to post-flood reconstruction spending and EU funds, offsetting the effects of weak external demand and higher uncertainty. The labour market will remain tight, keeping wage growth elevated. Wage pressures will keep inflation above 2% in 2025 and 2026. Downside risks include rising trade tensions that could further dampen exports and private investment. Also, stronger‑than‑expected wage growth could reduce competitiveness and keep inflationary pressures elevated for longer. On the upside, faster implementation of reconstruction and EU spending could boost investment activity.

Structural reforms will help raising investment and growth

Fiscal consolidation, as outlined in the national medium-term fiscal plan, is essential to rebuild fiscal buffers. While debt-financed defence spending is justified by current geopolitical risks, permanent increases will require spending reprioritisation. The social partners agreed on pension reforms—currently under parliamentary review—that include gradually raising the retirement age from 65 to 67 from 2028, extending the period for pension calculations from the most favourable 24 contribution years to 40 years minus the five best, and a greater weight of inflation in pension indexation. These reforms should be combined with further tax policy reforms to ensure long-term fiscal sustainability. This includes boosting labour supply by removing tax disincentives for second earners and single parents to work full time. Investment will benefit from structural reforms, such as easing immigration for non-EU workers and streamlining planning and permitting processes. These efforts should be paired with growth-friendly tax reforms to reduce the labour tax burden, funded by higher consumption, environmental and recurrent immovable property taxation.