Slovenia Q1 Growth Continues, War Inflation Rises, Consumption Slows

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Economy continues to grow in first quarter, and first direct impact of war in Middle East seen

April 21, 2026 Press releases Macroeconomic enviroment
The latest data indicates that the domestic economy continued to grow in the first quarter of this year. There are signs of a slowdown in consumption, while industrial production remains weak. Inflation slowed in March, driven largely by a slowdown in annual food and energy price inflation. The latest issue of the Review of macroeconomic developments also finds that the direct impact of the war in the Middle East is for now mainly being reflected in a rise in consumers’ inflation expectations, although the broader impact on the economy could strengthen over the remainder of the year.

Economic growth in the euro area slowed in March according to the survey indicators, largely as a result of the war in the Middle East. The slowdown was driven by services, amid weaker demand and rising uncertainty, which is also being reflected in a worsening economic sentiment in this sector and among consumers. According to the ECB’s March projections, economic growth in the euro area is expected to slow this year on account of the war in the Middle East, with the baseline scenario forecasting growth of 0.9%, while inflation strengthens to 2.6%.

The data available for Slovenia for the first quarter indicates that economic growth continued from the previous quarter, with signs of a slowdown in domestic consumption. The high-frequency indicators and a number of survey assessments of demand had already been suggesting as much for the first quarter. Meanwhile industrial production remains weak, in part as a result of a decline in output in the pharmaceutical sector in recent months. The direct impact of the war in the Middle East is for now being seen mainly in a sharp rise in consumers’ inflation expectations, while the broader economic impact might well strengthen over the remainder of the year. Foreign demand is also driving additional risks to exporters, with rising numbers of bankruptcies in key European partners and growing competitive pressure from China across the entire spectrum of goods in terms of technological intensity. Banka Slovenije’s nowcast for quarterly GDP growth stood at 0.4%, but last year’s low base means that the year-on-year rate will be higher.

The labour market saw the workforce in employment remain almost unchanged in year-on-year terms. The divergence between the public and private sectors remained, while the overall developments in employment continue to be driven in particular by a rise in the number of older employees, thanks to demographic factors and later retirement. Wage growth picked up again in January, largely as a result of a rise of 16% in the minimum wage, the second-largest rise of the last two decades and the largest seen in the EU this year. Given the previous high growth in labour costs and the relatively weak productivity, this is further increasing the pressure on the cost competitiveness of the economy.

Headline inflation in Slovenia as measured by the HICP slowed to 2.4% in March. The slowdown was driven by falls in annual food and energy price inflation, the latter driven by developments in electricity prices, while the pass-through of higher wholesale oil prices into final fuel prices is for now being partly limited by government measures and price regulation in the first part of the month. Higher energy and fertiliser prices on the wholesale markets will pose a risk of strengthening inflation expectations over the coming months, in that higher costs could gradually pass along production and supply chains and into final prices of goods and services.

The general government deficit had already widened to 2.5% of GDP last year, although government debt fell to 65.7% of GDP as a result of a nominal economic growth effect. The widening deficit reflects the high growth in general government expenditure, driven primarily by social security benefits, employee compensation, and investment, which reached a record high as a ratio to GDP. The war in the Middle East has worsened the fiscal outlook, owing to its impact on economic growth and to the measures taken to mitigate rising energy prices. To maintain the sustainability of the public finances and the fiscal space, these need to be temporary in nature, and targeted on vulnerable population groups and the energy-intensive sectors of the economy.

Review of macroeconomic developments, April 2026

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