Euro area economic growth has remained stable at the beginning of 2017; similar growth is also projected for the next two years. The relatively favourable forecasts are attributable to the high level of confidence in the economy and growth in private consumption, while the main risk to the forecast is political uncertainty. According to IMF projections, global economic growth will strengthen this year and in 2018.
Favourable economic developments continued in Slovenia at the beginning of the year. Export growth is still boosted by higher foreign demand and the favourable competitive position of manufacturing. A faster growth in manufacturing production is impeded by the relatively slow recovery of sales on the domestic market. Private consumption is picking up under the impact of favourable labour market trends and high consumer confidence. Household borrowing is also rising. The strengthening of consumption has a positive impact on turnover growth in trade and, in particular, services related to leisure. Economic sentiment is increasing further and points to a continuation of positive trends.
Gains in the manufacturing sector’s competitiveness are reflected in further growth in Slovenia's merchandise market shares in the EU and on the global market. In 2016, Slovenia offset around three fifths of its global market share loss from the first years of the crisis and increased its market share in the EU as well as its main trading partners.
As a result of favourable economic conditions, the labour market situation continues to improve. Higher year-on-year growth in employment was recorded for most private sector activities; after the relaxation of restrictions on hiring, employment also increased in public service activities. The decline in registered unemployment continues to be due particularly to the outflow into employment. Wage growth continues.
Consumer price growth is still mainly due to higher prices of energy and services as a result of supply-side factors and a further pick-up in consumption. Energy prices remain influenced by further commodity price growth on global markets. The continuation of price rises in services is attributable primarily to the strengthening of private consumption (particularly the prices of leisure-related services were up year-on-year); in some segments price growth also reflects suppliers’ efforts to adjust prices (higher prices of telecommunication services).
The volume of loans to domestic non-banking sectors increased further in March; it was also higher year on year. The main reason remains increased household borrowing, particularly in the form of consumer and housing loans, which we estimate is a consequence of favourable labour market trends and higher consumer confidence. The decline in corporate loans continues to slow gradually year on year, with enterprises increasingly borrowing abroad.
In the first two months of the year, the general government deficit was a solid third smaller than in the same period of 2016. Favourable general government developments are based on relatively rapid year-on-year growth in most revenue categories as a result of favourable macroeconomic conditions. Expenditure rose noticeably less than revenue. Its year-on-year growth in the first two months was mainly underpinned by current transfers and compensation of employees.