Slovenia: Keep Supporting The Economy Until Growth Is Fully Restored, Says OECD

After five years of robust growth that lifted employment, wages and well-being, Slovenia’s economy has been hit hard by the Covid-19 crisis. Further support to businesses and households may be needed to reinforce the recovery and avoid lasting scars, particularly given the underlying pressures of an ageing population, according to a new OECD report.

The latest OECD Economic Survey of Slovenia coincides with the country’s 10th anniversary of becoming an OECD member, a decade that has seen Slovenia carry out labour and pension reforms and further integrate into global value chains. Slovenia has also defied the rise in income inequality seen in many other OECD countries. Slovenia now needs to support the recovery from the coronavirus crisis until it is self-sustaining, including providing training and job search support to low-skilled workers, then return its focus to raising productivity, strengthening public finances and adapting the labour market and social system for a smaller and older workforce.

“Slovenia has made remarkable economic and social progress since joining the OECD, and the government has acted admirably to manage the health and economic fallout of the Covid-19 pandemic,” said OECD Secretary-General Angel Gurría. “It is vital now to stay on track, to stand ready to provide further support where needed to restore growth and then continue with measures to tackle the long-term economic challenges of an ageing population.”

Slovenia acted quickly to halt the spread of Covid-19 and its healthcare system managed the outbreak well. Financial measures to support jobs, income and businesses softened the shock to the economy. As these measures are withdrawn, the economy may need a fiscal stimulus in the form of some rapid and easy-to-implement temporary measures, the Survey says. The main risks to the economy now are a spike in bankruptcies and a further rise in unemployment.

Assuming no significant second wave of Covid-19 infections later this year, the Survey projects Slovenia’s GDP to grow by 4.5% in 2021 after declining by 7.8% in 2020. However, in the event of such a second wave , GDP is projected to grow only 1.5% in 2021 after a contraction of 9.1% in 2020.

Once the recovery is well on track, stimulus can be wound down and the focus revert to tackling the challenges arising from population ageing, which by 2055 will have doubled the ratio of over-65s to working-age people to 60%, creating the double challenge of addressing ageing-related spending pressures as the revenue base contracts. If these pressures are not contained or offset, the sustainability of public finances will be at risk, the Survey says.

Future growth will depend on employing workers in the most efficient way possible, for example by keeping older, experienced workers in jobs for longer, doing more to help low-skilled workers and improving labour allocation so workers can achieve their full productivity and wage potential. To ease the pressure from a projected tripling in the public pension deficit, the Survey recommends raising the retirement age to 67 and, if needed, linking future rises to life expectancy.

The Survey recommends further reforms to lower barriers to competition and foreign investment, to strengthen governance of state-owned enterprises and to make the tax mix more growth-friendly and inclusive by shifting the burden from labour to property taxes.

See an Overview of the Survey with key findings and charts (this link can be included in media articles)

Download the complete OECD Economic Survey of Slovenia 2020

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