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Economic Mirror: In the global economy, signs of stabilisation towards the end of the year; in Slovenia, a further strengthening of private consumption

Towards the end of last year, signs of stabilisation started to show in the global economy amid slightly less pronounced negative risks. The moderation of growth in foreign demand in the euro area in the course of last year was in Slovenia reflected mainly in lower growth in exports of some main manufactured goods. Private consumption was strengthening further at the beginning of the last quarter of 2019. These are the key findings of the Slovenian Economic Mirror released by the Institute of Macroeconomic Analysis and Development today.

Towards the end of last year, signs of stabilisation started to show in the global economy amid slightly less pronounced negative risks. Short-term indicators of economic activity and expectations have been stable in the last few months. There has been no deterioration in the Economic Sentiment Indicator (ESI) and the composite Purchasing Manufacturing Index (PMI) for the euro area for several months. It is especially encouraging that manufacturing indicators have ceased falling after several months of decline, particularly in our main trading partner, Germany, where the decline was most pronounced. In December the improvement in the international environment was also influenced by the partial trade agreement reached between the US and China and the increased chances of a Brexit with a deal.

In 2019 trade growth also slowed in Slovenia. The moderation of growth in foreign demand in the euro area was reflected mainly in lower growth in exports of some main manufactured goods. Exports of machinery and transport equipment to Germany declined the most, which also lowered the growth of imports of intermediate goods. The slower growth also affected activity in manufacturing, which had stagnated since the beginning of the year mainly due to insufficient demand.  The growth of trade in services, in particular exports of transport and construction services, slowed as well, also as a consequence of lower GDP and investment growth in our main trading partners. However, exports of these services are relatively high and, together with exports of processing services, make the largest contribution to the current account surplus.

 The euro area manufacturing PMI stabilised in December 2019 after several months of decline

Private consumption was strengthening further at the beginning of the last quarter of 2019; the sales of residential properties increased as well. With more means available as a consequence of growth in disposable income and consumer loans*, households continued to increase consumption particularly on some non-durable non-food goods and leisure-related services at home and abroad. Passenger car purchases by natural persons strengthened in the second half of the year, while spending on food, beverages and tobacco stagnated during this period. In 2019 (up to the third quarter) residential property sales increased again after falling in the preceding year. The sales of existing flats in Ljubljana and existing family houses increased the most, accounting for more than half of all transactions, while the sales of new properties declined. The average property prices were also higher, reflecting price rises in existing family houses and flats outside Ljubljana, while the average price of new properties was lower than in 2018.

Year-on-year price growth approached 2% at the end of the year, mainly due to accelerated food price growth, while the growth of Slovenian industrial producer prices remained modest.In 2019 year-on-year price growth was 0.4 pps higher than one year earlier. Prices of non-durable (particularly food) and semi-durable goods were up, while prices of durables dropped further. Price growth in services eased towards the end of the year, but was still more than twice that in goods. Despite solid growth on the domestic market, the growth of Slovenian industrial producer prices remained low owing to several months of decline on foreign markets.

The surplus of the consolidated balance of public finances was lower year on year in the first eleven months of 2019. Lower revenue growth was due mainly to year-on-year lower non-tax revenues and receipts from the EU, but also to lower growth in revenues from taxes. The surplus also declined due to stronger expenditure growth, which is mainly related to the adopted agreements on wage rises and further employment growth in the public sector and measures in the area of social transfers. The net budgetary position against the EU budget was positive in the first eleven months, albeit lower than in 2018, as EUR 168.3 million from the previous financial perspective 2007–2013 was reimbursed to the state budget in the same period of 2018. 

*The most recent data show that after strong October, consumer loans dropped at the monthly level in November 2019 as a consequence of the introduction of a binding macroprudential instrument. On the other hand, the growth of housing loans strengthened further.