Slovenian Economic Mirror: economic conditions remained tight at the end of the year; the labour market situtation deteriorated more notably
At the beginning of the last quarter of 2012, economic activity in the euro area declined further and expectations regarding the recovery remained low. Activity in manufacturing and construction and turnover in retail trade dropped again in October, which indicates a continuation of modest domestic demand in the last quarter of 2012. Against the background of weak economic activity, labour market conditions remained tight. The unemployment rate increased again in October, particularly in euro area countries with the largest public finance difficulties. At the end of 2012 some confidence indicators otherwise improved (PMI, ESI), but expectations about the recovery remained low. The ECB, which in December revised downwards its 2013 forecasts for economic growth in the euro area, expects a gradual recovery in the second half of the year. In December the required yields of most euro area government bonds dropped.
The majority of short-term indicators of economic activity in Slovenia, which are related to foreign demand, remained around the 2012 average in October and November, while most indicators dependent on domestic demand continued to deteriorate. Real merchandise exports grew somewhat in October and November, according to our estimate. Amid strong monthly fluctuations, they remained roughly unchanged y-o-y in the first eleven months of 2012. The prospects remain unfavourable, given that export expectations in main export-oriented manufacturing industries deteriorated substantially in the last quarter of the year. Production volume in manufacturing, which in 2012 increased only in high-technology industries, was up somewhat in October, reaching the level of the beginning of the year. Construction activity, which is markedly lower than before the crisis, dropped in October. Real turnover in retail trail also shrank again, as did nominal turnover in wholesale trade and market services other than more export-oriented transport services.
The labour market conditions tightened severely at the end of 2012, and the average gross wage per employee remained unchanged in October. Employment according to the statistical register declined again in October. In the second half of 2012 it also started to drop in public services, but in education and health and social work it was still up y-o-y in the first ten months. At the end of 2012 the number of registered unemployed persons started to increase more rapidly, climbing to 118,061 in December. In 2012 registered unemployment was up 7,184 from 2011, largely due to a higher number of people who lost work; 4,610 more persons than in the previous year were deleted from the register, which was mainly attributable to a higher number of those deleted for neglect of duties. The average gross wage per employee in the private sector has remained unchanged since the end of 2011. In the public sector and in the general government it fell once again in October, after the decline due to the enforcement of the ZUJF.
In December consumer prices dropped again, being up 2.7% from December 2011. The monthly decline (-0.3%) was mainly due to a seasonal drop in clothing and footwear prices. In 2012 prices were up y-o-y largely due to higher energy and food prices (0.9 p.p. and 0.7 p.p., respectively), and a one-off price rise in certain services (0.8 p.p.). Growth in energy prices was down y-o-y largely due to lower prices of natural gas, while growth in prices of services was higher than in 2011 (primarily due to the abolition of subsidies for school meals). In the euro area, 2012 inflation was 2.2%, according to the Eurostat flash estimate.
In November the volume of loans to domestic non-banking sectors recorded the largest decline in 2012; in October net repayments of domestic banks’ foreign liabilities increased again and the quality of bank assets deteriorated further. Loan volume declined mainly as a consequence of further corporate deleveraging in domestic banks, while the maturity structure of corporate borrowing abroad remained unfavourable, given that enterprises can only borrow short term. November also saw a decline in domestic bank loans by households, which were mainly repaying consumer loans. In the first eleven months of 2012, domestic banks – which were repaying foreign liabilities in the first ten months of the year (EUR 2.9 bn) – increased their exposure only to the general government. At the end of October bad claims accounted for 13.9% of the total exposure of banks, which therefore continue to create additional provisions and impairments.
According to the consolidated balance, the general government deficit amounted to EUR 1.1 bn in the first ten months of 2012. The y-o-y deficit reduction in the first ten months of the year (by EUR 232 m) was mainly due to lower expenditure (-2.1%), and partly also to a smaller decline in revenue (-0.4%). The y-o-y reduction in expenditure was primarily due to lower capital transfers (-20.3) and a decline in expenditure on wages and social transfers. Revenue mainly fell due to lower inflows of corporate income tax (-16.4%) and personal income tax.