Slovenia is classified as a high-income country. The country is strategically located at the crossroads between Eastern and Western Europe and is endowed with highly skilled human capital. It ranks among the most successful transition economies and is perhaps the most developed among the new members of the European Union. Slovenia is set to become the first among the new EU member states of Central and Eastern Europe and the Baltics to adopt the euro in January 2007.

Slovenia’s high income levels are in part the result of very high pre-transition standards of living, the highest among all transition economies. The country's GDP per capita in purchasing power standards in 2005 stood at 81 percent of current EU members and was higher than Portugal’s. Slovenia’s relative prosperity has been a key factor in the country’s approach to reform, which has differed substantially from other Central and Eastern European (CEE) countries. It has followed a gradualist and consensual approach to change, frequently postponing many key structural reforms. While this approach has worked well for Slovenia so far, the country’s competitiveness is slowly eroding, making the need for deep economic reforms more urgent.

The slow pace of reform and reluctance toward foreign participation in key areas has contributed to a relatively low incidence of foreign direct investment (FDI), with the average net FDI equivalent to about 1.2 percent of GDP in 1997-2005. This is despite a major change that took place in 2002, when the share of net FDI to GDP reached almost 7 percent. Nonetheless, FDI inflows to Slovenia in recent years are small compared with the other economies of CEE – in 2005 net FDI was 0.2 percent of GDP. Scant FDI inflows deprive the economy of an important mechanism to speed up the upgrading of production capacities.  

The Slovene economy has achieved solid growth—averaging 3.9 percent from 1997-2005—while avoiding the major macroeconomic imbalances that characterized most other transition economies in the region. Tight fiscal and monetary policies have contributed to remarkable stability, allowing the economy to enjoy both external and internal equilibrium with balanced fiscal budgets and open foreign trade.

Economic performance in 2005 was strong. Real GDP growth reached 3.9 percent, driven by an upswing in net foreign demand. Despite close-to-potential economic growth, average inflation in 2005 fell to 2.5 percent. This was mainly achieved by wage guidelines being set to lag productivity growth, by the smoothing of oil price increases through excise tax rates, and by a stable exchange rate.