Slovenia

General economic overview

The global and Slovenian economy quickly recovered from the COVID-19 pandemic. High economic growth was also accompanied by rising commodity prices. Simultaneously with the recovery, supply issues emerged, which prevented even higher economic growth, including in construction (lack of specific raw materials or products). Delivery times have been extended. In 2021, GDP in Slovenia increased by 8.1% in real terms (in the EU-27 by 5.2%). The pre-crisis level ( last quarter of 2019) was exceeded in the third quarter of 2021. In 2021, household consumption increased in real terms by an unparalleled 11.6%. Gross fixed capital formation increased by 12.3%. In 2022, gross fixed capital formation will grow by 7.5% and 4.5% in 2023. Investment activity in construction was marked by rising prices and difficulties in the supply of materials. Value added in construction was 2.8% higher in real terms in 2021. Construction sector represents 6.1% of the total value added in Slovenia, in the EU-27 5.6%. The purchasing power of the population remained high, interest rates remained low and demand remained high, which caused residential construction to grow.

In the whole year of 2021, there were 11,344 or 1.3% more persons in employment than in 2020. In 2021, the number of persons in employment increased the most in health and social work (3,075 persons), construction (2,848 persons or 4.4 %) and manufacturing (2,790 persons). In 2021, there were 67,762 persons in employment in construction, whereas the number of persons in employment increased mainly in special construction works. The number of persons in employment increased in the last half of the year, while in December 2021 there were 71,346 persons in employment. Despite doubling the number of works permits issued in 2021, the number of valid work permits (10,120 work permits) was 9% lower in December 2021 than in December 2020. Number of persons in employment with or without primary education increased in one year by 2,715 persons, and with secondary education by 2,108 persons, which represent as much as 70% of all persons in employment in construction. The situation on the labor market remains very favorable, and due to the shortage of labor, there are also pressures on wage growth in construction.

The value of construction works was 0.5% lower in 2021 than in 2020 (5.7% higher in the EU-27). Construction activity was weak. We associate this with high prices and lower availability of materials, as well as a shortage of workers. In 2021, 6,933 building permits were issued, which was 17% more than in 2020 (the building area tied to those permits was 27% higher). Among them, 17% more building permits were issued for residential buildings and the same number for office buildings. The area of all buildings with building permits was expected to increase by 27%.

In 2021, the prices of residential real estate in Slovenia increased by 11.5%, and in the EU-27 by 8.3% on average. In 2021, the total value of housing transactions for all types of dwellings in Slovenia was about EUR 1.6 billion. This was almost a third more than in the previous year, when the value was EUR 1.2 billion. The total number of transactions of dwellings in Slovenia in 2021 was 13,440, which is about 16% more than in the previous year, when it was the lowest in the last seven years due to the covid-19 epidemic. In the real estate market, we expect real estate prices to rise again in 2022, as a result of high household income availability and construction prices of new real estate due to rising material prices and labor costs (shortage of construction workers is high across Europe). At the same time, real estate financing conditions will remain historically favorable, but less than in 2021. High inflation in the past also coincided with rising demand for this form of investment, which means that this trend also has a positive effect on higher prices.

Confidence in construction is at relative high level, although more and more companies are facing a shortage of raw materials. Prices in construction are under pressure from rising commodity prices. According to business sentiment in construction, in March 2022 two thirds of companies pointed out high material costs as a limiting factor to their operations, and 30% of companies pointed out the lack of materials. Both indicators have risen sharply in the last year, reaching the highest level in 20 years. Construction costs for new dwellings increased by 10.7% in 2021 (materials by 13.6%, labor costs by 7.2%).

In 2022, construction investment at the state and local levels, building construction (public and private investors), and warehouse logistics will increase. Investments in state infrastructure will increase due to new infrastructure projects. Investment growth will be stimulated by additional EU funds from the Recovery Plan and Resilience Mechanism. Growth in residential buildings will continue. The overall growth of the value of construction works in 2022 is estimated at 10%. In 2021, the increase in the value of construction works on buildings is estimated at 8.5%. Construction activities will be stimulated by public investments in the coming years. We expect even stronger growth in 2022 and 2023, which will be significantly influenced by the country's investment activity, stimulated by the EU Recovery and Resilience Facility and the completion of the financial perspective 2014-2020, as well as cohesion funds and other sources from the European budget for 2021- 2027. The funds will encourage higher construction investments and more construction works performed. Services that are more related to construction, manufacturing and the recovery of economic activity in general (eg architectural design and consulting services) will also recover faster after the removal of covid-19 restrictiveness measures.

Housebuilding

The value of construction works in buildings was 20.6% lower in 2021 compared to 2020. In non-residential buildings it was lower by 37%, while in residential buildings it was higher by 15%. High level of employment, solid savings of citizens and availability of mortgage loans are maintaining optimism on the housing market, although the prices of new housing have been continuously growing in recent years. The growth of building construction is estimated at 8.5% for 2022. Further growth in housing investment is planned. The Republic Housing Fund will build housing with the help of municipal funds and private investors. Growth in housing construction will remain high. In 2022, we also expect an increase in non-residential construction buildings. Individual constructions of non-residential buildings will be slightly accelerated, despite the fact that construction companies are highlighting rising material costs as one of the main limiting factors of production. Investments in warehousing logistics and new production facilities will increase.