The 2023 European Commission Country Report on Slovenia provides a nuanced evaluation of the country’s economic trajectory, highlighting both its strong performance in recent years and the mounting structural challenges that could constrain future growth. In 2022, Slovenia’s economy grew by an impressive 5.4%, showcasing its resilience in the face of global uncertainty and economic disruption following Russia’s war in Ukraine. This robust growth was largely underpinned by increased consumer spending, a rise in investment activity, and the residual impact of fiscal support measures. However, as global inflation persists and external demand softens, the economic momentum is expected to slow. Projections for 2023 and 2024 anticipate more modest growth rates of 1.2% and 2.2%, respectively, reflecting both domestic constraints and an increasingly complex international environment.

Inflation surged to 9.3% in 2022, and while this was driven partly by volatile energy prices, core inflation also rose significantly, reaching 6.8% on average. Slovenia’s external position has also undergone a shift. Although the country had historically maintained a current account surplus, this has weakened considerably, with the trade balance—excluding energy—deteriorating by over six percentage points of GDP since 2019. Still, Slovenia remains a dynamic and diversified export-oriented economy. Its export performance in 2022 was buoyed by an expansion in re-exports and increasing market share, which helped soften the impact of the external environment. Notably, trade with Russia paradoxically expanded during the same period, primarily due to pharmaceutical exports (exempt from sanctions) and a rise in energy imports.

Energy dependency continues to present both short-term and structural challenges. Slovenia made notable strides in reducing its reliance on Russian natural gas by diversifying its energy suppliers, yet gas-intensive industries such as chemicals, paper, and metal production—employing 4.5% of the workforce—suffered from high input costs. Government interventions helped mitigate the impact of rising energy prices on both consumers and businesses, preserving social and economic stability. The country's banking sector also remained a pillar of support. Slovenian banks have consistently reported solid profitability, with return on equity exceeding 9% since 2017. The capital adequacy ratio declined slightly in 2022, placing it just below the EU average, but the share of non-performing loans improved to 1.9%, in line with European norms.

Despite its resilient banking system, Slovenia’s capital markets remain underdeveloped and illiquid compared to EU standards. Slovenian businesses still rely heavily on bank financing, while access to capital market funding remains limited. The Ljubljana Stock Exchange is characterized by low trading volumes and minimal institutional investor presence. Insurance companies—mostly state-owned—allocate a much smaller share of their investments to equity compared to their OECD counterparts, further hampering market depth and investor confidence. This underdevelopment poses a barrier to financial diversification and long-term investment, particularly for innovative and growth-oriented firms.

Fiscal policy in Slovenia has entered a new phase, following the phase-out of COVID-19 support measures and temporary interventions related to the energy crisis. The general government deficit narrowed from 4.6% of GDP in 2021 to 3.0% in 2022, a reflection of both revenue growth and a reduction in extraordinary expenditures. The government implemented targeted relief policies to soften the blow of inflation and energy price spikes, but the broader fiscal consolidation was supported by the return to more normalized economic activity. Maintaining this trajectory will require careful management, especially as uncertainties related to energy prices, inflation, and global trade continue to loom.

In summary, Slovenia’s economy has proven adaptable and resilient, anchored by strong fundamentals such as export diversification and a stable banking system. However, it now stands at a crossroads. Inflation, energy vulnerability, and a weak capital market infrastructure all present critical challenges that could hinder long-term growth and resilience. To navigate this environment successfully, Slovenia will need to implement structural reforms that deepen its financial markets, enhance energy security, and foster greater economic diversification. Through strategic policy action and prudent fiscal governance, the country can consolidate its recent gains and sustain its convergence with more advanced EU economies.