The Slowdown in Growth – An Underestimated Economic Infectious Disease

Alongside the concept of resilience, which was recently the focus of one ‘Ekonomalije’, another word has subtly crept into the everyday economic and business vocabulary this year. It is the word slowdown.

Compared to last year, the growth of personal and government consumption is slowing, investments are slowing, and the growth of gross wages is slowing. Consequently, it is expected that 2025 will end with a slowed GDP growth (from 3.9 percent in 2024 to below three percent in 2025). Forecasts for 2026 indicate further slowing of growth.

A Deceptive Word

Slowdown is a deceptive word in economics and business. It does not seem overly concerning. To slow down does not mean to stop. It is merely a reduced speed. When the slowdown also associates with the desire of many of us to slow down the rush of life and careers, to establish a relationship between business and private life at a slower pace that we dream of, it is not surprising that warnings from analysts and forecasters about the slowdown in business dynamics do not provoke particular unrest.

However, there are indeed reasons for concern and action. What are the possible scenarios of slowdown?

A slowdown in growth from, for example, four percent a year to three percent does not seem terrible. From three to two percent? Well, that’s a bit inconvenient, but we still have growth. But from two to one percent, that already activates the alarm even for optimists. Unstoppable benign slowdown ends in recession. And we are, as much as we may have forgotten about it, still a little afraid of it, aren’t we?

The second scenario would be that the slowdown is halted and that GDP can steadily increase by two to three percent each year in the coming years. It sounds appealing, but it cannot happen on its own. Equilibrium is an exception in economics. Balance is a transient state. A pendulum almost never stops in any balance.

The third scenario is that intellectual effort is invested and that, at the state level, with the agreement of the government, employers, and unions, and with the expert assistance of the economic profession and other fields, an anti-slowdown economic program is devised. To aim for desired growth. Let’s say, year after year, 0.5 percent higher. With the first year in which the slowdown is transformed into acceleration to three percent GDP growth.

Unfortunately, it is hard to expect this from the current government. Just as it is hard to expect that the dormant opposition could create its quality anti-slowdown program. The government has relied in recent years on fueling growth with raw energy – through wage growth in the public sector and fuel in the form of generous European funds.

EU funds will not dry up in the coming years. As things stand now, they will be a third smaller than before, but two-thirds will still be available. Still, that is also a slowdown. Wages are not so simple. State unions, hooked on the opiate of wage growth, will not easily give up on a new ‘kick’. However, budget inflows have already slowed this year, and it is unlikely that the ruling party can satisfy key voters and employers without jeopardizing the hard-won investment credit rating.

Halting the slowdown in GDP growth and its components is now only possible with quality fuel. Through increased commodity exports, better functioning of the state apparatus, and, what is most painful for the ruling party, slowing the amount of money that is ‘darkened’ in state procurements. Without that, there will be no investments. And without investments, there will be no production with the desired higher added value. The acceleration of wages in recent years is slowing down investment.

A Threat to the State Treasury

If politics is still not aware of the alarming state due to the slowdown of the economic machine, business is. At a gathering of economists in Opatija, Željko Lovrinović excellently pulled the phrase ‘inflation expectations’ from the archives of older economists. This is an infection in which entrepreneurs and managers do not believe the government will stop the rise in prices, so they do not only incorporate past cost increases into new contracts. Instead, they embed expected inflation into prices. Similar are the ‘slowing expectations’. Company directors will not shout this from the rooftops, but from conversations with some of them, it can be concluded that the expected slowdown in domestic conditions (along with what is already embedded in foreign markets) is changing targets for 2026.

If the government expects the real sector to kill itself to achieve last year’s sales at the level of each company just to fill the state treasury with VAT, it is in a great and dangerous delusion. Rational businessmen will adjust to more modest growth. Growing just for the sake of growth is foolish and dangerous. There is always an optimum at a lower level. The same profit can be achieved in multiple ways. And the worst thing in a market slowdown phase is to pour money into growth and end up with full warehouses of unsold goods, a series of unpaid bills to suppliers, and a loss that needs to be presented to the owners.

Slowdown is a dangerous infectious disease.