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Slovenian Economic Mirror: Gains in competitiveness are boosting exports

In Slovenia favourable developments continue in most sectors; the prospects also remain good. The labour market situation continues to improve under the impact of favourable economic conditions, while the growth of wages remains moderate. In October inflation was significantly lower than in previous months. The volume of loans to domestic non-banking sectors is rising further; the quality of claims continues to improve steadily. Amid favourable economic developments, the general government deficit on a cash basis was almost balanced in the first eight months of 2017.

Economic growth in the euro area continued in the third quarter; in October the IMF improved its world economic growth forecast for this year and next. Growth is expected to strengthen further to 3.6 and 3.7 this year and in 2018 respectively. Owing to the more favourable conditions, the IMF also raised its outlook for the volume of global trade. According to the IMF, world GDP growth could increase even more than forecast, supported by stronger business confidence and the continuation of relatively favourable financial market conditions. Downside risks to growth are related to a faster-than-expected hike in Fed interest rates, uncertainty over US trade policy and the continuation of strong credit expansion in China.

In Slovenia favourable developments continue in most sectors; the prospects also remain good. Higher foreign demand and competitiveness gains are contributing to further growth in exports and manufacturing production, particularly in export-oriented industries, which is reflected in further growth in Slovenia’s merchandise market share on foreign markets. The improvement in economic conditions and the recovery of the property market are reflected in stronger activity in the residential construction segment, though activity in other construction segments has been declining in recent months. As a result of positive labour market developments and high consumer confidence, private consumption continues to expand, particularly in the segments of durable goods and leisure-related services. Lending to households is also on the increase. With stronger domestic and foreign demand, turnover is also rising in other market services. Economic sentiment continues to improve, indicating a continuation of positive trends.

The labour market situation continues to improve under the impact of favourable economic conditions, while the growth of wages remains moderate. The number of employed persons, which continues to increase across most sectors, is now at a level comparable to that in 2007. However, a certain segment of enterprises, particularly in manufacturing, is already facing a shortage of skilled labour. Increased hiring and a smaller inflow into unemployment are reflected in a decline in the number of unemployed. At the end of October, 83,000 persons were registered as unemployed, 14.7% fewer than in October 2016. Average earnings rose by a good 2% in the first eight months of the year.

In October inflation was significantly lower than in previous months. This was mainly attributable to a decline in prices of clothing, which recorded slightly different movements than in the past owing to the removal of regulation of seasonal sales. The prices of durable goods also remained down year on year. Prices of services continue to rise moderately, supported by favourable economic developments and consumption. The contributions of oil products and food (unprocessed food in particular) rose again, as, owing to higher excise duties on tobacco products, did the contributions of the alcohol and tobacco component.

The volume of loans to domestic non-banking sectors is rising further; the quality of claims continues to improve steadily. The volume of household loans, in particular housing and consumer loans related to stronger consumption of durable goods and the rebounding property market, is still increasing gradually. Since mid-year the volume of corporate and NFI loans has also been picking up. The structure of bank liabilities continues to change at an accelerated pace in favour of non-banking-sector deposits; however, owing to near-zero deposit interest rates, only overnight deposits are on the rise. The quality of banking system claims continues to improve steadily.

Amid favourable economic developments, the general government deficit on a cash basis was almost balanced in the first eight months of 2017. Growth in general government revenue remained strong, which, in addition to certain measures taken and one-off factors, was primarily due to favourable labour market conditions. Expenditure growth remained moderate.