IMAD, whose forecasts are used as a basis for state budgeting, had projected a 4.3% increase in Slovenia’s GDP in its winter forecast. The latest forecast was reviewed by the government on Wednesday.
“Trends in the second half of last year showed businesses and consumers increasingly adapting to the new situation. This, coupled with the improved prospects in the international environment and the exports and construction sectors being less affected in the second wave of the epidemic, contributed to a somewhat better outlook for 2021 than expected in December,” IMAD director Maja Bednaš said.
Due to continued restrictions on some services, the government economic think-tank does not yet expect a substantial recovery in the first quarter. However, as the coronavirus epidemic is expected to ease off in the second quarter, that segment of the economy is also expected to mend, which should reflect positively on growth in private consumption and the overall economic activity.
On the assumption of a further easing of restrictions in the second half of the year as an increasing share of the population is vaccinated against Covid-19, the recovery would gain pace towards the end of the year.
The support of fiscal policy measures at the national and EU levels will remain key, along with the European Central Bank’s monetary policy measures.
IMAD expects the pace of recovery to initially differ from one sector to another with growth projected to continue in manufacturing and construction and related services. Investment growth is also expected to be relatively strong in particular in infrastructure and residential projects.
Gradual reopening of services starting from spring will boost private spending, as the disposable income increases and households start spending their savings. Household spending is also expected to get a boost from redemption of tourist vouchers.
International trade is also expected to continue to grow, in particular in goods but gradually also in services. The slowest and latest will be the recovery of services related to tourism with IMAD projecting the hardest-hit sectors could reach pre-crisis levels mostly by 2023.
The government forecaster also expects a recovery of the labour market with average unemployment in the year expected to remain at a similar level as last year. Still, government measures, in particular in the first half of the year, will continue to mitigate the negative impact of the crisis as they are to be phased out gradually.
The economic recovery is expected to continue in the coming two years and economic activity is to return to pre-crisis levels next year. Precautionary measures that are expected to remain in place would hinder a full recovery of some services such as the travel industry.
Growth is then expected to slow down to 3.3% in 2023 as growth in employment is boosted further but the average number of the unemployed in 2023 is to remain above the level in the pre-crisis year of 2019.
Downwards risks are related to the uncertainty about the development of the epidemic at home and in Slovenia’s main trading partners. It will depend on the vaccine rollout and the management of the epidemic as well as on a well-thought through phasing out of mitigation measures and transition to development-oriented measures as part of the EU recovery and resilience plan and multi-year financial framework.