SI Macro Outlook: Growth dynamics started to cool down, but still remaining solid
Following a period of high GDP growth rates, the headline figure entered 2019 on an expected cooldown, with growth decelerating to 3.2% y/y in 1Q19 (vs. 4.1% y/y in 4Q18). However, the growth slowdown mainly came at the cost of negative inventories performance, as the detailed structure revealed steady support from domestic demand, but also resilient exports growth, which ensured a positive net exports contribution. Going forward, we see the growth rate remaining at similar levels, i.e. around the 3% mark. The structure should bring no major changes, with the exception of a diminishing exports role amid slower growth in Slovenia’s main export markets. Thus, we keep our FY19 forecast unchanged at 3.2% y/y, with growth risks mainly linked to external uncertainties.
Inflation movements are expected to remain steady throughout the remainder of 2019, with strengthening domestic demand generating upside pressures, while cost-side drivers should have a somewhat more moderate impact. Fiscal trends are seen as remaining on a positive track, with the 2019 budget figure expected to bring another surplus amid continued tax revenues growth. Such developments are welcomed by the rating agencies, with S&P affirming its rating at A+ (positive outlook), while Moody’s upgraded Slovenia’s outlook from stable to positive, while also affirming its rating at Baa1.