Since 1997, Slovenia has enjoyed dynamic growth, steadily moving toward the OECD average gross domestic product (GDP) per capita. Strong growth reflected a favourable business environment and significant structural reforms that paved the way to European Union (EU) accession in 2004. Prudent macroeconomic policies also helped to maintain growth without creating any major imbalances, until recently. In particular, the social agreement of 2002 to keep wage growth below that of productivity helped to reduce inflation toward the level in the euro area within a couple of years. The agreement also contributed to improved competitiveness while preventing a significant deterioration in the current account balance, in contrast to the experience of many other transition economies. A strict agreement on public wage restraint since 2004 and cautious implementation of the two-year budgeting rule helped bring the fiscal balance back to surplus in 2007. These positive developments suggest a sustainable catch-up during this period. However, some signs of overheating emerged after euro area entry in 2007, which coincided with strong food and energy price shocks, with inflation peaking mid-2008 at the highest level within the euro area and unemployment falling significantly below its estimated natural rate.