The macroeconomy in the aftermath of the crisis

Slovenia enjoyed strong economic growth before the crisis but faced one of the most pronounced recessions in the OECD in 2009. The crisis has revealed important weaknesses in Slovenia’s pre-crisis economic performance, which was excessively dependent on credit and construction activity. To rebalance the economy, the authorities need to take decisive policy actions. On the macroeconomic side, they should ensure a durable reduction in the structural deficit to avoid any loss of investor confidence, and necessary measures should be taken to support the banking sector to alleviate the risks of credit rationing. On the structural side, the challenge is to restore competitiveness and raise potential growth so as to continue sustained convergence towards more advanced OECD economies. Despite a significant proposed pension reform, further comprehensive steps are of outmost necessity to improve long-term fiscal sustainability and boost the labour supply of older workers. Measures to improve the functioning of the labour market, notably to raise labour demand for older and less-qualified workers, are also needed. Particular attention should be paid to labour costs at the minimum wage level. To get closer to the technology frontier, Slovenia should improve its innovation framework (Chapter 1) and education policies (Chapter 2). Foreign direct investment and the governance of state-owned enterprises both need to be strengthened to stimulate economic dynamism and raise productivity (Chapter 3).