OECD Economic Outlook, Volume 2020 Issue 2

Slovenia

GDP is set to fall by 7.5% in 2020 and grow by 3.4% in 2021 as the effects of the pandemic will continue to disturb economic activity until at least mid-2021. From then until the end of the projection horizon in 2022, investment and exports will be the main engines of growth thanks to higher demand in trading partner countries, improvements in the epidemiological situation, increased household confidence due to the rolling out of an effective vaccine, and the effects of the EU stimulus plan.

Targeted sectoral support measures may need to be continued to tackle sporadic virus outbreaks, while immunisation has not been attained, and to avoid a negative long-lasting impact on the economy. Employment transitions would benefit from directing employment and training subsidies to job seekers with high assistance needs. Prolonged wage support is needed in the tourism and entertainment sectors.

The spread of the virus has gathered speed

The spread of the coronavirus has accelerated since September 2020. In addition to distancing measures, mandatory mask wearing and restrictions in schooling, the government announced new measures to contain the spread of the virus, including the restriction or prohibition of gatherings of more than six people, a ban on travel between municipalities and regions and a curfew. While remote learning is already applied in higher education, it has been extended to primary and secondary schools. Also, a two-week lockdown started in mid-November, involving – among other restrictions – the interruption of public transport services and closure of all non-essential stores.

Slovenia: COVID-19 and economic activity

1. Private demand includes private final consumption expenditure and gross fixed capital formation.

2. Daily number of cumulative cases.

Source: Ourworldindata; and OECD Economic Outlook 108 database.

Statlink

Slovenia: Demand, output and prices

Statlink

The pick-up in economic activity has been interrupted by the intensification of the outbreak

Economic activity picked up in the third quarter of 2020, after the end of the lockdown in mid‑May. Household purchases of durables remained resilient, and firms built up inventories. The private sector’s financial position continued to be favourable, as household disposable incomes declined only slightly. However, the recent acceleration in the spread of the virus has led to new restrictions that are affecting economic activity, in particular in services sectors.

Fiscal stimulus is supporting the economy

The initial fiscal package to counter the effects of the crisis amounted to nearly 4½ per cent of GDP. The measures in the supplementary budget for 2020 adopted in September result in a projected budget deficit of 8.3% of GDP. Spending on COVID‑19‑related measures until the end of August covered support for furloughed workers, waived social security contributions, provided income support to different categories of workers and allowed firms to defer corporate income tax payments. By the end of September, the government announced a new round of stimulus measures to support the economy. It extended the furlough scheme until the end of 2020 and introduced a basic income support for self-employed workers who have to self-isolate due to COVID‑19, with strict eligibility criteria. Additional measures introduced in November, amounting to 2% of GDP, include extending the furlough scheme until the end of January 2021 and introducing a fixed subsidy scheme for businesses, doubling the amount of furlough payment workers can receive, and increasing loan guarantees for firms.

The outlook is uncertain as the virus spreads

Activity is likely to slow again as the virus spreads, and assumed sporadic local outbreaks and associated containment measures will moderate the recovery. Demand is projected to bounce back in 2021 before receding to a more stable path. Government spending and household consumption will maintain the recovery until the end of 2021, with sustained government transfers and confidence strengthening due to an effective vaccine rollout. The EU stimulus plan will also contribute to high public consumption and investment over the projection period. As the economy is highly integrated into EU value chains, the export‑oriented sectors will benefit from stronger EU demand from 2021.

The outlook is highly uncertain. A further significant deterioration of the health situation could lead to prolonged restrictions that would stall the economic recovery. Continued weak external demand remains another key risk for growth. However, a bolder recovery in Europe thanks to a rapid rollout of an effective vaccine would lift growth prospects.

Targeted policy actions would increase the resilience of the labour market and the healthcare system

Unemployment is increasing, calling for reinforced active labour market policies targeted on specific groups, such as long-term and older unemployed persons. Government support to households and businesses most affected by the crisis, in particular in the tourism and entertainment sectors, should continue. However, the governance of state-owned enterprises should be improved to increase value for public money. Once the pandemics subsides, reforms to tackle spending pressures on public finances from population ageing should be advanced.