Slovenia today enjoys both a prosperity and stability that are too often the exception in Central and Eastern Europe. Although it comprised only about one-thirteenth of Yugoslavia's total population, it was the most productive of the Yugoslav republics, accounting for one-fifth of its GDP and one-third of its exports. It thus gained independence in 1991 with an already relatively prosperous economic and strong market ties to the West. Since that time, it has pursued diversification of its trade toward the West and integration into Western and transatlantic institutions vigorously. Slovenia is a founding member of the World Trade Organization, joined CEFTA in 1996, and began accession negotiations with the European Union in 1998. Slovenia also participates in SECI (Southeast European Cooperation Initiative), as well as in the Central European Initiative, the Royaumont Process, and the Black Sea Economic Council.

Today, Slovenia is the most prosperous country of transition Europe and well-poised to join the mainstream of modern industrial economies. It benefits from a well-educated and productive work force, and its political and economic institutions are vigorous and effective. Its per capita income is now 70% of the EU average. Although Slovenia has taken a cautious, deliberate approach to economic management and reform, with heavy emphasis on achieving consensus before proceeding, its overall record is one of success. The current account deficit began in 1998 (-US$147.2 million), deepened in 1999 to -$782.6 million, and improved slightly in 2000 on stronger exports to -$594.2 million. In 2000, Slovenia's economic growth reached 4.8% (2000), annual inflation, 9.2% (2000), and the debt to GDP ratio was well within Maastricht parameters. Due to its macroeconomic stability, favorable foreign debt position, and obvious interest in EU membership, Slovenia consistently receives the highest credit rating of all transition economies.

Slovenia's trade is oriented toward Western (EU) countries mainly Germany, Austria, Italy, and France. This is the result of a wholesale reorientation of trade toward the West and the growing markets of central and eastern Europe in the face of the collapse of its Yugoslav markets. Slovenia's economy is highly dependent on foreign trade. Trade equals about 120% of GDP (exports and imports combined). About two-thirds of Slovenia's trade is with EU members, a primary motivation for seeking EU membership. This high level of openness makes it extremely sensitive to economic conditions in its main trading partners and changes in its international price competitiveness. Keeping labor costs in line with productivity is thus a key challenge for Slovenia's economic well-being, and Slovenian firms have responded by specializing in mid- to high-tech manufactures. Agriculture, forestry, and fishing is a comparatively low 2% of GDP, while industry and construction comprise over one-third of GDP. As in most industrial economies, services make up an increasing share of output (60.1%), notably in financial services.

Economic management in Slovenia is relatively good. Public finances have shown recently so far modest deficits on the order of 1.2% of GDP through 1999. Reversal of this trend will depend primarily on the government reversing the explosive growth in pension expenditures. Other accounts are fairly robust: Slovenia has an increasing current account deficit, declining from a balance in 1997 to -$594.2 million in 2000. While the authorities have been successful in stabilizing the Slovenian tolar and bringing inflation down from more than 200% in 1992 to an estimated 9.2% in 2000, inflation edged up from 1999 with the introduction of a value-added tax.

Slovenia is set to experience a slow-down in its economic growth rate this year--from 2000's 4.8% to about 4.25% in 2001. The effect of the foreign sector will be critical to the realization of this forecast, as export demand in Slovenia's prime--mainly EU--markets slows. To some degree, investment will take up the slack, as analysts forecast investment to advance on sale of state assets including portions of the telecommunications, financial, and energy sectors. With increasing deficit in pension accounts, current account deficit of about 3% of GDP, increasing inflation rate, Slovenia will have to address carefully fiscal, monetary, and FDI policy.

Slovenian enterprises have a tradition of market orientation that has served them well in the transition period, as they moved energetically to reorient trade from former Yugoslav markets to those of central and eastern Europe. However, in many cases under the Slovenian brand of privatization, managers and workers in formerly "socially owned" enterprises have become the majority shareholders, perpetuating the practices of "worker management" that were the hallmark of the Yugoslav brand of communism. Difficulties associated with that model are expected to decrease under competitive pressures, as shares in these firms change hands, and as EU-oriented reforms introduce more Western-oriented governance practices.

Slovenia's entry into the European Union, expected by the year 2005, provides the impetus for further economic improvements. Economic policy will be largely geared toward EU accession over the next few years. Main areas of focus will be adopting EU rules on the internal market, structural economic reform, and reform of the judiciary and public administration. The government will be hard-pressed to meet this major challenge of harmonization with EU law. However, without further vigorous reforms, Slovenia's position--also with respect to other CEE countries--will slip. The EU has expressed some dissatisfaction with the pace of harmonization in Slovenia and has joined the U.S. and the International Monetary Fund in urging Slovenia to expedite necessary structural reforms. Following a lukewarm report card from Brussels in November 2000, the government redoubled its efforts to that end, stressing implementation of newly adopted legislation.

Slovenia's continued success will hinge mainly on the success of fiscal reform, wage restraint, and its ability to truly open its economy. A backlog of reform legislation has been building, and passage of important measures to restructure the economy has been slow. This situation is starkest in the area of foreign direct investment, where not only foreign capital but international best practices and modern technology are at stake. Slovenia's traditional anti-inflation policy relied heavily on capital inflow restrictions. Its slow privatization process favored insider purchasers and prescribed long lag time on share trading, complicated by a cultural wariness of being "bought up" by foreigners. As such, Slovenia has had a number of impediments to full foreign participation in its economy. Slovenia has garnered some notable foreign investments, including United States investments of $125 million by Goodyear in 1997 and by Western Wireless International planned for US$150-$200 million over 4 years beginning in 2000.

With the entry into force of Slovenia's Europe Agreement and the intensification of discussions in Brussels over EU membership, Slovenia has taken some important steps to free up its financial markets. This sector has long been one of the most protected, reflecting various combinations of concerns over Slovenia's small monetary space, a limited capacity to meet globalized competition, or native control over domestic finance. A combination of market forces and changes in bank of Slovenia regulations and national legislation are moving this sector increasingly in a more globally oriented direction. In the future, it will become easier and more transparent to make both portfolio and direct investments in Slovenia and to conduct many financial operations, including banking, securities brokering, and undertaking various credit transactions. The banking sector also is showing signs of stirring from its relative torpor, as pressures to consolidate its myriad banks build and privatization of two of Slovenia's largest banks gradually gets underway. Insurance will remain a reform backwater, while many eyes are turning, with some concern, to the implications of transitioning to the euro.

Removal of remaining "speed bumps" hindering FDI, further liberalization of the financial sector, completion of privatization, and progress on company restructuring are necessary to improve economic performance at the macro and micro levels. Without these measures, unemployment, likely will remain high. Consequently, the budget deficit could increase, and the date of accession to the EU could move further into the future.

GDP: purchasing power parity - $21.4 billion (1999 est.)

GDP - real growth rate: 3.5% (1999 est.)

GDP - per capita: purchasing power parity - $10,900 (1999 est.)

GDP - composition by sector:
agriculture: 4%
industry: 35%
services: 61% (1998 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 4%
highest 10%: 24.5% (1993)

Inflation rate (consumer prices): 6.3% (1999 est.)

Labor force: 857,400

Labor force - by occupation: agriculture NA%, industry NA%, services NA%

Unemployment rate: 7.1% (1997 est.)

Budget:
revenues: $8.11 billion
expenditures: $8.32 billion, including capital expenditures of $NA (1997 est.)

Industries: ferrous metallurgy and rolling mill products, aluminum reduction and rolled products, lead and zinc smelting, electronics (including military electronics), trucks, electric power equipment, wood products, textiles, chemicals, machine tools

Industrial production growth rate: 2% (1999)

Electricity - production: 13.18 billion kWh (1998)

Electricity - production by source:
fossil fuel: 37.1%
hydro: 24.7%
nuclear: 38.2%
other: 0% (1998)

Electricity - consumption: 10.661 billion kWh (1998)

Electricity - exports: 2.146 billion kWh (1998)

Electricity - imports: 550 million kWh (1998)

Agriculture - products: potatoes, hops, wheat, sugar beets, corn, grapes; cattle, sheep, poultry

Exports: $8.4 billion (f.o.b., 1999)

Exports - commodities: manufactured goods 45%, machinery and transport equipment 30%, chemicals 10%, food 3% (1997)

Exports - partners: Germany 28%, Italy 14%, Croatia 9%, France 8%, Austria 7% (1998)

Imports: $9.7 billion (f.o.b., 1999)

Imports - commodities: machinery and transport equipment 31%, manufactured goods 31%, chemicals 11%, fuels and lubricants, food (1997)

Imports - partners: Germany 21%, Italy 17%, France 12%, Austria 8%, Croatia 4%, Hungary 3%, Russia 3% (1998)

Debt - external: $4.9 billion (1998 est.)

Economic aid - recipient: ODA, $5 million (1993)

Currency: 1 tolar (SlT) = 100 stotins

Exchange rates: tolars (SlT) per US$1 - 195.06 (January 2000), 181.77 (1999), 166.13 (1998), 159.69 (1997), 135.36 (1996), 118.52 (1995)

Fiscal year: calendar year

See also : Slovenia