Resilient economy with strong macroeconomic fundamentals

The Covid-19 crisis interrupted a previously strong fiscal consolidation trend. The government implemented strong fiscal stimulus measures to mitigate the economic impact of the pandemic, resulting in fiscal deficits of -7.6% of GDP in 2020 and -4.6% in 2021, followed by a more adequate -3% in 2022. In 2023, the shortfall decreased to -2.5% of GDP, in spite of the government measures to tackle the economic fallout from the war in Ukraine and EU sanctions on Russia. In 2024, the annual deficit widened somewhat owing to increased social spending and reconstruction efforts after the heavy floods in 2023, which more than outweighed cuts in subsidies. Looking ahead, the fiscal deficit is likely to decline in 2025-2026 as social contributions will increase and post-flood reconstruction spending should gradually decline. That said, there is a degree of uncertainty concerning annual deficit projections since reconstruction investment depends on the planning and maturity of projects. Nevertheless, we do not expect the annual fiscal deficit to exceed -3% of GDP until 2026. Meanwhile, total public debt has fallen from a temporary peak of 80% of GDP in 2020 to slightly below 70% in 2023 and is projected to continue to decline moderately in the next few years. This ratio is below the Eurozone average. Moreover, as a member of the EU and the Eurozone, Slovenia benefits from the “Next Generation EU” package.

Gross external debt fell from a peak of EUR47bn (124% of GDP) in 2014 to EUR44bn (92% of GDP) in 2019 but has since risen steadily to EUR60bn as of mid-2024 (approximately 94% of GDP) in the wake of the subsequent crises (Covid-19, war in Ukraine). Moreover, the share of public sector external debt stands at just below 60%. However, there are several facts that mitigate concerns about the external debt position. First, only 35% of it is short-term debt. Second, Slovenia became a net external creditor in 2021 and since external assets have continued to rise more strongly than liabilities, the former exceeded the latter by EUR7bn in mid-2024. Third, the external debt-to-GDP ratio is comparatively low for an advanced economy and, being a Eurozone member, Slovenia can be considered as such. Fourth, the external debt of the Slovenian banking sector accounts for only 9% of gross external debt, which is very low for an advanced economy.

Slovenia’s external current account posted a deficit in 2022, after 10 consecutive years of large surpluses, because imports rose much faster than exports as a result of the sharp increase in global food and energy prices in that year. Yet, the annual external shortfall was small at -1.1% of GDP and gave way to a considerable surplus of 4.5% of GDP in 2023 as energy prices moderated. Monthly surpluses widened further in 2024 and we project continued large surpluses in 2025-2026.