Development Report


Development Report

Development report 2017

Following the setback during the crisis, Slovenia has been making progress in terms of economic development and the welfare of its population in recent years; it has also reduced pressures on the environment. Since 2014 the economic picture has been improving, and Slovenia is again catching up with economically more advanced countries. The recovery has led to an overall improvement in the material situation of the population, while quality of life is also being favourable affected by the relatively good access to a large part of public services. Despite the rising economic activity, the movements of key environmental indicators have remained favourable in the last few years.

However, owing to the significant fall in GDP during the crisis, Slovenia still lags significantly more behind the EU average than before the crisis in terms of economic development and the living standard of its population. For Slovenia to achieve sustainable and balanced development, which will be reflected in higher welfare of the population, priority measures should be focused on:

- Raising productivity by efficient use of technological progress and know-how.

- A comprehensive adjustment to the changing demographic structure of the population: (i) labour market and migration policy (ii) social protection systems (iii) education and training (iv) promoting adjustment of work processes and better age management in the workplace (v) encouraging healthy lifestyle habits (vi) adjusting housing conditions and the transport network with the support of ICT and technological solutions.

- Ensuring a faster transition towards a green economy by moving towards more sustainable production and consumption patterns.

- Increase the efficiency of the government and its institutions to support and promote development

Whole publication: Development report 2017

GDP has been rising since 2014; besides exports, domestic consumption is becoming a more and more important driver of growth. In 2016 GDP increased by 2.5%. Exports remained the main factor of economic growth. Their growth, boosted by rising foreign demand and the competitiveness gains from previous years, increased slightly further. Domestic consumption also continued to rise, its growth being to a much greater extent than in previous years underpinned by private consumption. Stronger growth in employment and earnings and very favourable consumer confidence indicators were reflected in increased purchases of durable goods, which had decreased the most during the crisis; moreover, purchases of other goods and services, the main component of private consumption, also rose more visibly for the first time in several years. With the relaxation of certain austerity measures, government consumption was also up again. Domestic consumption also continued to expand, its growth being even more than in previous years due to private investment in machinery and equipment, which has otherwise been rising since 2014. Its growth has been mainly related to high capacity utilisation, good business performance and lower corporate indebtedness. Only public investment, which had been significantly higher in 2014 and 2015, thus deviated from the favourable movements in 2016, its contraction being attributable to the very modest absorption of EU funds upon the transition to the new financial perspective.

In 2016 economic growth continued across the entire EU (1.9%). It was again mainly due to the strengthening of private consumption. Government and investment consumption also picked up. Although its GDP growth exceeded the EU average in the three years to 2016, Slovenia has remained in the smaller group of EU Member States where GDP is still lower than before the crisis.

GDP in Slovenia and its main trading partners

After declining for several years, consumer prices rose at end of 2016, mainly owing to supply-side factors but partly also to a further rise in demand. Among the supply-side factors, the growth of oil and commodity prices on global markets caused energy prices to decline for the first time in two years and thus contributed to further rises in the prices of unprocessed food. The strengthening of demand is estimated to have mainly influenced the rise in service prices, which, one-off factors excluded,  strengthened further in 2016. This indicates that increased demand makes it possible for some segments of the non-tradable sector to raise prices. Price rises were mainly recorded for leisure-related services, but also for services related to housing maintenance, utility services, financial services and postal services. Increased domestic demand is not yet reflected, on the other hand, in the prices of durable and semi-durable goods. The prices of durables fell again, while the prices of semi-durables were also lower in 2016 after two years of modest growth. Price developments in this segment are mainly related to companies in the tradable sector trying to maintain competitiveness, which continues to hold back a more visible price growth.
 
Contributions to year-on-year growth in consumer prices in Slovenia

The surplus on the current account of the balance of payments in 2016 was the highest thus far. It totalled EUR 2,698 million (6.8% of GDP).  The current account balance has been positive since 2011. This mainly reflects the deleveraging and net saving of the private sector and the still relatively low level of corporate investment amid favourable export trends and the strengthening of tradable-sector competitiveness. The faster growth of exports of goods and services contributed 8.7 pps to the total surplus growth in the period since 2011 (EUR 2.6 billion). Particularly in 2013–2016, the surplus in trade in goods also rose sharply as a result of the positive terms of trade, which – owing to the fall in energy and other commodity prices – contributed a total of EUR 0.8 billion (around 55%) to the change in this period. The deficit in primary income has been gradually narrowing since 2009, with the exception of 2015,  the main reason being higher net income from labour (larger inflows of revenue from abroad and smaller outflows abroad). On the other hand, net payments of interest on external debt have exceeded the pre-crisis level since 2014, particularly on account of government borrowing. Specifically, the private sector has recorded net interest receipts from the rest of the world since 2015, owing to the deleveraging of commercial banks and higher domestic investment in foreign securities. The deficit in the balance of secondary income has remained roughly unchanged since 2013.
 
Components of the current account of the balance of payments

Slovenia’s gross external debt increased by EUR 2.9 billion to EUR 43.3 billion from the onset of the crisis to the end of 2016; in the debt structure, the share of government debt rose strongly. From 2008 to the end of 2016, the gross external debt of the government sector rose by EUR 17.8 billion to EUR 21.6 billion. This was a consequence of the increase in long-term government debt (particularly in 2014), mainly in order to finance fiscal deficits and measures to bail out domestic banks.  In 2015 and 2016 total gross external debt contracted as a consequence of more moderate growth in government debt amid further commercial bank deleveraging abroad. In 2008–2016 the banks’ gross external debt declined by EUR 13.8 billion to EUR 4.1 billion, mostly owing to loan repayments, coupled with the withdrawal of non-resident deposits from Slovenian banks. Debt dynamics were also influenced by the Bank of Slovenia, which in 2012 provided additional liquidity for domestic commercial banks through longer-term refinancing operations and thus increased its liabilities within the Eurosystem significantly before reducing them in the following years. The gross external debt of other sectors (mainly non-financial corporations – enterprises) declined after 2008, with enterprises mainly repaying long-term loans abroad. Intercompany financing of affiliated enterprises has strengthened. Most of this relates to debt of Slovenian affiliates to their parent companies abroad.
 
In the structure of debt with regard to guarantees, public debt rose by EUR 17.8 billion to EUR 21.6 billion from the beginning of the crisis to the end of 2016.
Private non-guaranteed debt more than halved during this period, while publicly guaranteed debt rose slightly.  At the end of 2016 public debt accounted for almost half of total gross external debt (49.8%, an increase of 40.6 pps over 2008).

Structure of Slovenia’s gross external debt by sector

After deteriorating strongly following the crisis, Slovenia’s net financial position vis-à-vis the rest of the world has been improving steadily since 2013 and is approaching 35% of GDP. At the end of 2016 Slovenia’s net international position was negative, at minus 13.7 billion or 34.5% of GDP (in 2008: 39.4% of GDP). The improvement relative to the pre-crisis year reflected an increase in financial assets held abroad (by EUR 7.5 billion) amid an otherwise smaller rise in external liabilities (by EUR 6.3 billion). The debt-to-GDP ratio was also favourably affected by the higher nominal GDP. The increase in total claims was largely due to investment in securities. The largest increases in the stock of assets from securities were recorded in other financial corporations, insurance companies and pension funds, which was related to the higher yields on foreign financial markets. The expansion of total assets was also due to the actions of Bank of Slovenia, which was buying foreign debt securities in the euro area in accordance with the public sector purchase programme (PSPP). The volume of other investment also rose, mostly under the impact of a significant increase in assets from currency and deposits in 2015. Up to 2016 the Government had been transferring its assets to bank accounts abroad and receiving positive returns on term deposits of over six months, while in 2016 it started to withdraw deposits from foreign accounts and deposit them with the BoS. The stock of Slovenian outward FDI and financial derivatives remained approximately the same. The increase in total external liabilities relative to the pre-crisis year was mainly due to growth in liabilities from foreign investment in securities and foreign direct investment in Slovenia. This rose owing to the inflow of equity capital and liabilities of Slovenian affiliates to parent companies abroad. Liabilities to foreign portfolio investors increased significantly with the issue of long-term government bonds. At the end of 2016, liabilities from other investment, on the other hand, were significantly below the level from 2008, primarily owing to further commercial bank deleveraging, the outflow of non-resident deposits from Slovenian banks and a decline in liabilities within the Eurosystem. Slovenia is significantly below the level of the most indebted countries in the euro area. In 2016 it was slightly below the indicative threshold of the EU indicator of international investment position (35% of GDP).

Net financial position in EU Member States, as a % of GDP

The general government deficit has been declining in the last few years; in 2016 it amounted to 1.8% of GDP. The decline has been taking place under the impact of the improvement in macroeconomic conditions, which since 2014 has been reflected in the strengthening of tax revenues and revenues from social contributions; the growth of these revenues was also influenced by the adopted permanent measures. In 2016 the Government stepped up activities for more efficient tax collection (tax registers). The main measures that contributed to the increase in tax revenues in 2015 were increases in the rates of the tax on financial and insurance services and the CO2 tax. VAT rates, which had been raised in 2013, and the fourth income bracket remained in place in 2015; the Government also broadened the base for social contributions (student work). In 2014 and 2015 fiscal consolidation on the expenditure side was mainly supported by temporary measures, which affected wage policy, employment of public servants, social benefits and transfers, but with the relaxation of these measures in 2016,  the deficit decline was to a larger extent than in previous years achieved by the reduction of flexible categories of expenditure. Particularly investment (i.e. its co-financing with EU funds) dropped as a result of the lower receipts from the EU funds upon the transition to the 2014–2020 financial perspective. The growth of intermediate consumption was also slower, stemming mainly from higher expenditure in public institutes in the health sector. Capital transfers related to the BAMC were also significantly lower in 2016. A comparison of expenditure levels in 2016 relative to 2008 shows the largest increases for expenditure on social benefits (pensions), interest payments and compensation of employees and the largest declines for investment and general government subsidies. The impact of one-off factors, similarly to 2015, was negligible in 2016.

General government balance in EU Member States, 2016

In 2016 general government debt (as a % of GDP) declined significantly; with the active debt-management policy, its maturity continues to lengthen and the implicit interest rate to decline. The reduction of debt stopped the upward trend seen since mid-2008. In 2016 the debt-to-GDP ratio decreased by 3.4 percentage points (to 79.7% of GDP at the end of 2016), which is also a consequence of a nominal debt decline. According to the level of debt, Slovenia ranks in the middle of EU Member States, but it is still among those in which debt has increased the most in comparison with the pre-crisis figures. In 2016 the Government increased the existing debt issues and issued new long-term bonds in the total amount of just below EUR 4.8 billion. The bulk of the new debt issued in 2016 was allocated for repayments of the matured principal (around EUR 3.6 billion) and – in the favourable borrowing conditions on international financial markets – the swapping of the bonds issued in 2012–2014 with the required yield of over 5% for long-term bonds with better conditions (including the two bonds maturing in 2035 and 2040, respectively, in the total amount of EUR 2.0 billion with the average interest rate of only just above 1.5%). The high liquidity of the money market was also reflected in the extremely low required yield on short-term debt instruments, which has been at less than 0% since February 2016.  The implicit interest rate of the total debt thus declined by 0.1 of a percentage point in 2016 (to 3.7%). The predominant portion of debt remains at the central government level (98% of total debt).

Consolidated general government debt in EU Member States in 2016 and the change of debt relative to 2008

The required yields on Slovenian 10-year government bonds continued to fall in 2016. Such a decline was characteristic of most EU Member States, this mainly related to the further improvement in economic and financial market conditions and the implementation of the ECB’s measures (a further lowering of interest rates and an increase in security purchases).  The required yields of Slovenian government bonds, like those of a number of other euro area countries, thus dropped to very low levels in 2016 (in Slovenia, the lowest level thus far, 0.6%, was reached in March 2016). In 2016 Slovenia again took advantage of the environment of low interest rates on government securities of various maturities for pre-financing the liabilities of the state budget in the years to come.

In 2016 Fitch and S&P raised their credit ratings for Slovenia; Moody’s left its rating unchanged but improved the outlook to positive from stable. The main reasons for the improved ratings arise from favourable developments in the economy, the expected continuation of economic growth in the next few years, and improvements in the area of public finances and the banking system. Despite the upward revisions in recent years, however, the ratings remain lower than before the crisis.

Yields on 10-year government bonds denominated in euros

In 2015, taxes and social contributions exceeded the pre-crisis level in nominal terms for the first time; their increase was the largest since the beginning of the crisis. Revenues related to the recovery of the labour market (social contributions and personal income tax) and private consumption (VAT)  increased the most amid the recovery in economic activity since 2014. The improvement in business performance was also reflected in higher revenue from corporate income tax; this revenue nevertheless lags the most behind that before the crisis, not only as a result of the deterioration in corporate business results in the early years thereof, but also due tax rate reductions.  Revenue from taxes and social contributions as a share of GDP (37.1%), which indicates the burden of taxation, was slightly higher in 2015 than that in 2008 (+0.3 pps) but smaller than the peak in 2005 (-1.2 pps).

In 2015 the share of taxes and contributions as a share of GDP in Slovenia was lower than the EU average.  The burden of taxes and contributions was 3.8 pps lower than the average for the old EU Member States, which was mainly due to the relatively lower tax burden on personal income. On the other hand, it was 4.4 pps higher than the average for those countries that joined the EU in 2004 or thereafter, the main reason being the relatively higher burden of social contributions. Slovenia stands out from both averages with its higher shares of excise duties and social contributions as a % of GDP and its smaller share of the tax burden on corporate income.

The burden of taxes and social contributions as a share of GDP, 2015

In the period since the crisis, the tax burden has been shifted from capital to consumption, while the effective taxation of labour has remained more-or-less the same. The effective taxation of consumption, measured by the implicit tax rate on consumption, has risen significantly relative to the pre-crisis period as a result of the increased rates of excise duties, VAT (as of mid-2013) and certain environmental taxes. It reached the highest level in 2015 (26.1%). Owing to the gradual reduction in the corporate income tax rate and the increase in tax reliefs, the implicit tax rate on capital in 2015 (21.7%) was much lower than when it peaked in 2007.   The implicit tax rate on labour was relatively stable after a period of decline (2006–2010), but rose to the level of 2008 again with an increase in 2015 (to 36.0%) when the payments of social contributions from student work were introduced. In comparison with the EU average, Slovenia had a significantly higher effective tax rate on consumption according to the latest internationally comparable data available, while the gap in the effective taxation of labour was small.  The shares of revenues from taxes according to their economic function as a share of GDP show similar trends and similar international relationships since 2008 to those of the implicit tax rate. The changes to tax legislation adopted in 2016  represent a shift towards increasing the taxation of capital and reducing the taxation of labour.

Implicit tax rates (ITR) on consumption, labour and capital (as a % of the base)

State aid  (excluding crisis aid ) stabilised at 1.5% of GDP in 2013–2015; it is among the highest in the EU. Having hovered around the EU average for several years, state aid surged after 2008. The increases in 2009 and 2010 were a consequence of the special crisis measures, which were later replaced by an even greater volume of new measures focused on environmental protection, efficient energy use and employment of disabled persons. State aid for the restructuring of firms also rose significantly in 2015, after being relatively low in previous years. The level of state aid aimed at enhancing the competitiveness of the economy and business investment  (for R&D and innovation, aid for small and medium-sized enterprises, training, and regional development) continues to shrink and is becoming increasingly dependent on receipts from European structural funds. In 2015, at the transition to the absorption of funds from the new 2014–2020 financial perspective, the amount of state aid for these purposes more than halved (to EUR 49 million or to less than one-tenth of total aid). Such uneven absorption of funds brings volatility to the financing for these purposes, making it increasingly difficult for Slovenia to implement its industrial policy.
 
State aid is increasingly being provided through tax instruments, which is a non-transparent and less desirable way of state aid provision. In 2015 tax instruments already accounted for as much as 23.5% of total state aid, compared with less than 5% before 2011. The reduction of social security contributions, a very rapidly rising form of state aid (2015: EUR 76.9 million), is meant to promote employment of disabled persons.  The instrument of exemption from environmental taxes (CO2 emissions), which had been used significantly less in previous years, also rose significantly in 2015 (to EUR 51.6 million). State aid being increasingly provided through tax instruments (and high general tax allowances, which are otherwise not considered state aid), government intervention in the economy has been rising in recent years, but its effectiveness is questionable. The difference between the relatively very high level of state aid in Slovenia and the EU average narrowed slightly only in 2014, and this as a result of higher state aid in the EU. Specifically, in 2014 state aid for environmental protection (renewable sources and efficient energy use) in the EU tripled relative to 2013 and accounted for as much as 42% of total state aid in the EU.
 
State aid by category (excluding crisis aid), in EUR million

Slovenia has a wide gap with the EU in financial system development and this widened further in 2016; particularly the gap in capital-market and banking-sector development has increased since the onset of the crisis. In 2015 the banks’ total assets were already 12.7% lower than in 2008, recording what was one of the largest declines in the EU (larger declines were reported only in Austria, Belgium, Cyprus, Greece, Luxembourg and Spain).  In 2016 the decline continued. Throughout this period, this was mainly due to the falling volume of loans to non-banking and banking sectors as a result of deleveraging of non-banking sectors (enterprises and NFIs in particular) and modest interbank lending, as banking system liquidity has been high in the last few years. As regards sources of finance, the banks continued to reduce their liabilities to domestic and, in particular, foreign monetary sectors (including the ECB). The share of liabilities to foreign banks totalled 7% of total liabilities at the end of 2016; their value had declined by around EUR 15 billion since the onset of the international financial crisis and totalled EUR 2.7 billion at the end of 2016. The capital market, which is shallow and illiquid in Slovenia, has shrunk noticeably since the beginning of the international financial crisis. The relatively strong market capitalisation growth during the period of economic boom was followed by a pronounced decline in the prices of shares during the crisis. These have been recovering more visibly only in the last two years. In 2016 the market capitalisation of shares (EUR 5 billion) reached only around 25% of its 2007 peak, lagging more than 55 percentage points behind the EU average as a % of GDP.
 
The development gap is smallest in the insurance sector, where the indicator value declined the least during the crisis. However, Slovenia still lags significantly behind the EU in terms of its share of life-insurance premiums, which, at 1.5% of GDP, amounts to less than one-third of the EU average. The low value in this insurance category is also a consequence of the relatively insignificant level of this type of saving for old age, which additionally impedes capital market development.

Banks’ total assets as a % of GDP in EU Member States, 2015

The loan-to-deposit ratio has declined since 2009, but in 2016 the pace of decline slowed considerably. The indicator value has almost halved compared to the highest level (in 2008). This significant decline was due to the strong contraction of loans and fairly high growth in deposits. In 2008–2016 the volume of loans to the non-banking sector declined by over one-third, owing to accelerated corporate sector deleveraging and the transfer of claims to the BAMC. On the other hand, bank deposits rose by almost 30%. Owing to the low deposit interest rates, only overnight deposits have been on the rise. These have recorded 80% growth in the last five years alone and already accounted for around 40% of the banking system’s total assets in 2016. Among deposits, the deposits of domestic non-financial corporations have increased significantly, in the last five years almost by half, to EUR 5.8 billion.

In the EU the value of this indicator has also declined since the beginning of the crisis, but from a lower pre-crisis level and to a much lesser extent than in Slovenia; in 2016 the decline even accelerated slightly. This was a consequence of a smaller volume of loans to non-banking sectors, which fell again in 2016 following an increase in 2015. Only in Ireland has the loan-to-deposit ratio fallen more than in Slovenia since the beginning of the crisis

Loan-to-deposit ratio in EU Member States, 2015

With the process of the banks’ balance sheets repair, the volume and share of non-performing claims declined, most notably in 2016, but they remain relatively significant. This means that they still pose a risk to the stability of the banking system. Before the beginning of the banking system restructuring in December 2013, the volume of non-performing claims  totalled EUR 7.8 billion. By the end of 2014, it had dropped to EUR 4.4 billion, mainly owing to the transfers of claims to the BAMC. Later the decline was also due to the restructuring of enterprises within the master restructuring agreements (MRA), increased write-offs and, to some extent, the sales of a portion of non-performing claims. At the end of 2016 the volume of non-performing claims thus totalled EUR 2.0 billion. Most of this amount was accounted for by claims against enterprises from construction, manufacturing, the distributive trades, professional and scientific, technical, and administrative and support service activities, and real estate. The dynamics of the decline in the share of non-performing claims in the total exposure  was also significantly affected by the fall in the total lending activity of banks: had loan volume remained at the level seen after the beginning of restructuring in 2013, the share of non-performing claims would have been another 1 pp lower in 2016
 
The share of non-performing claims is still above the EU average. While it rose much more than in the EU as a whole in the early years of the crisis, it has also been falling faster after the banks’ balance sheet repair, but nevertheless remains higher than the average. Compared with EU Member States that requested financial assistance, Slovenia has reduced the share of non-performing claims the most since the beginning of banking system restructuring.

Comparison of the shares of non-performing claims in EU Member States, 2015

Corporate indebtedness has been declining since 2009, more notably since 2013. In the pre-crisis period the growth of financial debt  (particularly bank debt) resulted in a significant deterioration in the indicators of indebtedness, which reached their peaks in 2008 and 2009. In the following years these indicators improved gradually, particularly during the period from 2012 to 2015. The decline in total debt in this period, especially in 2014 and 2015, was primarily due to the reduction of bank debt (by 47% relative to 2008, of which 32% in 2014 and 2015). This debt had at first been shrinking primarily as a result of the winding-down of companies,  whereas its decline since 2012 has been to a greater extent due to the intensive deleveraging of surviving companies and the transfers of claims to the BAMC. The movement of some indicators was also influenced by companies’ EBITDA,  which has on average been rising ever since 2010, more noticeably in 2014 and 2015. In 2015 most indicators of indebtedness thus reached the most favourable values in the entire period analysed (since 2006).

The debt overhang  of Slovenian companies declined the most in 2014 and 2015. In 2009, when it peaked, it was almost twice as high as in 2006, while in 2015 it again came close to the levels of 2006. In 2015, 44% of the debt overhang was debt with an interest coverage ratio  below 1, meaning that companies were not able to finance debt with their current operations. As most of these companies also have negative EBITDA, even their survival is questionable in the long term. Among over-indebted companies, those focused on the domestic market and micro, small and medium-sized enterprises (SMEs) have predominated since 2011. Policy measures for these companies have mostly been created only in the last two years. In 2015 their share in the total debt overhang stood at 59%.  Debt overhang was highest in holding and leasing companies; broken down by sector, it was highest in the distributive trades, real estate, transportation and storage, manufacturing, and professional and technical activities.

The concentration of the financial debt of over-indebted companies is relatively high. In 2015 the 10 most indebted companies accounted for around 30% of the financial debt of all over-indebted companies (and 28% of value added). The 50 most indebted companies accounted for as much as half of the financial debt of all over-indebted companies (and 42% of value added). Of these, 34 companies had already been over-indebted before the crisis.

Corporate sector indebtedness and debt overhang

Slovenia’s gap with the EU average in terms of economic development remained wide in 2015, at 17 pps. In 2014 Slovenia had converged slightly with the EU average in terms of GDP per capita in purchasing power standards (PPS)  for the first time since the onset of the crisis, while in 2015 GDP per capita in PPS remained the same as in 2014 (25,500 PPS), according to the most recent Eurostat data. Before the crisis, Slovenia had been catching up with the EU on this indicator and reached 90% of the EU average in 2008. However, owing to a steeper decline in economic activity,  it lost nine percentage points compared with the EU as a whole over the next five years until faster economic growth in 2014 and 2015 (Slovenia 3.1% and 2.3% respectively; EU 1.6% and 2.2% respectively) reduced the gap by two percentage points. Current data on economic activity suggest that Slovenia continued to converge with more developed countries in 2016 (see Indicator 1.1). The breakdown of per capita GDP into productivity and employment rate shows that the renewed narrowing of Slovenia’s development gap recorded since 2013 has arisen from the increase in productivity, which nevertheless remains significantly lower than in the EU as a whole (see Indicator 2.4). The decline in the employment rate, which was significantly higher than the EU average at the beginning of the crisis, stabilised in 2014 and 2015 at a rate just above the average rate in the EU.

Slovenia remains one of the countries whose relative positions in economic development in the EU have deteriorated the most since the beginning of the crisis. The countries that have diverged more from the EU average than Slovenia since 2008 are Greece (25 pps), Cyprus (24 pps), Finland (12 pps), the Netherlands, and Spain and Italy (11 pps each). Sixteen counties have improved their positions in this period, ten of them being new Member States. In terms of GDP per capita in PPS, Greece (93%) and the Czech Republic (84%) were closest to Slovenia in 2008; the countries closest to Slovenia in 2015 were Cyprus (82%) and the Czech Republic (87%). Two of the new Member States, Malta and the Czech Republic, outpaced Slovenia in this period. The overall gap in GDP per capita in PPS among the EU Member States has been narrowing over the years, from 1:9.5 (Romania to Luxembourg) at the beginning of the previous decade to 1:5.6 (Bulgaria to Luxembourg) in 2015.

GDP per capita and its components

Slovenia’s market share in merchandise trade increased significantly in 2013–2016. In 2008–2012 Slovenia was one of the EU countries that experienced the largest losses in market shares in global merchandise trade (−22%), which was partly a consequence of the regional and product structures of the country’s exports.  The decline on the markets of the main trading partners (12) was more than half smaller; on the EU market some two-thirds smaller. In 2013–2015 Slovenia was among the EU countries with the highest growth in world market share.  Its fall relative to 2007 decreased by around a third. Slovenia achieved pre-crisis levels on the markets of its main trading partners; in the EU, it exceeded them. In the first nine months of 2016 the positive trends continued. Slovenia remained among the EU Member States with the highest growth in world market share.

The growth of Slovenia’s world market share in 2013–2015 was a consequence of increases in the shares on most of its regional and product markets, which were, at the same time, some of the most dynamic. Significant market share growth was recorded not only in Germany, Italy, Austria, Croatia and Russia, but also on the relatively less important EU markets; these market shares were also significantly higher than before the crisis. In terms of factor intensity, the market shares of resource-intensive products and of low-technology- and medium-technology-intensive products grew in this period. The market share of high-technology-intensive products declined,  but remained at the pre-crisis level in 2015. Despite the increase, the shares of low- and medium-technology-intensive products were around one-fifth lower, while the share of labour-intensive products was two-fifths lower than before the crisis.

World merchandise market shares of EU Member States, growth rates in %

In 2016 labour unit costs increased following several years of decline. At the beginning of the crisis real unit labour costs rose significantly under the impact of strong wage growth (2008 and 2010 ) and a decline in labour productivity (2009). Their decline in 2011 arose from the slowing growth of wages. Owing to renewed growth in labour productivity, it also continued in 2013–2015. The renewed growth of unit labour costs in 2016 was a consequence of slower growth in labour productivity amid stronger growth in compensation per employee. It stemmed primarily from the non-tradable sector. 

In manufacturing, unit labour costs continued to decline in 2016. Owing to a strong contraction in foreign demand, 2008 and 2009 recorded a larger decline in value added (and hence in labour productivity) in manufacturing than in the economy as a whole. Real unit labour costs therefore also increased more, despite the more modest growth of wages. Real unit labour costs in manufacturing had already started to decline in 2010. In 2016 they were at the same level as before the crisis, while real unit labour costs in the economy were still higher. More specifically, with a rebound in foreign demand, labour productivity in manufacturing was higher than in the economy as a whole due to a larger increase in value added and a steeper decline in employment. Growth in compensation of employees was otherwise also higher, but not as much as labour productivity growth.

In 2016 the manufacturing sector’s position relative to the EU was similar to that before the crisis, while the relative position of the economy as a whole was still worse than in the pre-crisis period. Up to 2010 Slovenia had been among the EU Member States with above-average growth in real unit labour costs in manufacturing; since 2010, on the other hand, the country has been experiencing an above-average decline. In 2016 real unit labour costs in manufacturing were at the same level as in 2007 (in the EU 0.3% lower and in the euro area 1.9% higher ). Real unit labour costs in the economy as a whole were 4.8% higher in this period (in the EU and in the euro area 1% and 2.8% higher respectively).

Real unit labour costs in Slovenia and EU Member States, in %

Slovenia's productivity gap with the EU average remains wider than before the crisis. In 2000–2008 the average annual rate of productivity growth  in Slovenia (3%) was significantly higher than the average rate in the EU (1.2%) The lag behind the EU then widened during the crisis and has been declining only slowly since 2014. The relative productivity level in comparison with the EU (where GDP in purchasing power standards per person employed is usually compared) in 2015 was thus, at 82%, 2 pps below its 2008 peak. The breakdown of trend productivity growth into the contributions of capital and total factor productivity indicates a greater impact of these two components on the slowdown of productivity growth after 2008 than in the EU. The sharp decline in the contribution of capital not only reflects the cyclical fall in investment, but is also attributable to structural factors, particularly the less than optimal allocation of capital before the crisis. Total factor productivity indicates mainly the impact of long-term structural factors, which affect the innovation activity of enterprises and the development of high-growth enterprises.

At the sectoral level, only the manufacturing sector exceeded slightly the ratio in relation to the EU that was recorded before the crisis; in market services and construction, it is still significantly lower. In 2008–2015 manufacturing reduced its productivity gap by approximately two percentage points. Productivity growth was mainly driven by medium- and high-technology industries, while the contribution of the technologically least intensive industries was negative. In comparison with the pre-crisis period, productivity growth was particularly favourably affected by the restructuring of manufacturing, especially in the early years of the crisis.  Among market services, traditional services (trade, transport, and hotels and restaurants) were closest to their pre-crisis levels in relation to the EU in 2015. Significant lags behind the EU are recorded for financial services and construction, sectors that were severely affected by the crisis, and, owing to the decline in domestic demand, for professional and technical services. Information and communication activities also have significantly wider gaps in relation to the EU than before the crisis, not only computer and information services, where small businesses predominate, but also telecommunications, a sector characterised by one of the largest investment declines in the EU  during the crisis and the retention of state ownership in the largest provider of these services.
 
Productivity in purchasing power standards

The structure of merchandise exports has improved since the beginning of the crisis. The share of high-technology products expanded particularly in the first years of the crisis (2008 and 2009), when the shares of other, less competitive, industries started to contract more strongly. The increase was mainly attributable to the growth of pharmaceutical exports, but this came to a halt in 2014 and 2015, owing mainly to the fall in exchange rates and in prices on some of the key export markets. The share of high-technology products has thus remained much lower than the EU average, though slightly higher than the average for new Member States. The share of medium-technology products is significantly higher than in the EU as a whole; it rose further in 2014 and 2015, largely owing to the renewed growth (after a fall during the crisis) in the share of passenger car exports and exports of automotive-related products. Despite this increase in the last period, however, it is still significantly lower than in the years before the crisis

The share of products with low value added  in merchandise exports has stopped falling in recent years. Owing to competition from countries with lower labour costs, the significance of these products in total merchandise exports has been declining, primarily reflecting the falling share of labour-intensive products (e.g. furniture, textile products, and paper and paperboard), though the share of low-technology products has also decreased significantly since the start of the economic crisis. This has accelerated the transformation of these sectors. Companies have thus managed to preserve their – mostly healthy – cores, as the share of products with low value added has been relatively stable in the last four years. Despite the decline since the onset of the crisis, the relative volume of these products remains above the EU average.

The share of exports of resource-intensive products,  which had risen markedly in the early years of the crisis owing to the increased trade in primary products, has been declining of late. The shares of electricity and petroleum product exports have increased since 2009, mainly on account of higher volumes of trade in these two product groups (re-exports). Following a significant decline in energy prices at the end of 2014, the value of international trade in these product groups declined noticeably;  electricity exports also fell following several years of growth.


Since 2013 the growth in knowledge-intensive market services  has mainly resulted from the strengthening of revenues on foreign markets. Following a fall during the crisis, these services started to recover later than in the EU, but their value added has exceeded the pre-crisis level since 2014 (in the EU as a whole since 2011). Specifically, several years of weak domestic demand had a negative impact on activity in service sectors that are focused predominantly on the domestic market  and have only in recent years started to offset the decline in domestic sales by sales on foreign markets. In 2015 their value added was thus still 10.6% below the pre-crisis level, whereas in the EU this figure had already exceeded it in 2012. In contrast, the share of value added of some knowledge-intensive services  that started to rapidly increase revenues particularly on foreign markets  after 2009, has been gradually rising. In 2015 their value added exceeded the pre-crisis level by 37.4% (in the EU: in 2014 by 12.8%).

Despite stronger export orientation, the competitiveness of knowledge-intensive market services on foreign markets remains weak. Slovenia continues to lag significantly behind the EU average with regard to the share of knowledge-intensive market services in total services exports. In the three years to 2015 this share practically stagnated; in 2015 it totalled 22.3% and lagged more than 10 pps behind the average in the EU (2015: 37.9%), where exports of computer services are rising at the fastest pace. In 2015 lower shares in services exports with regard to the EU average were found particularly in computer services (by 7.6 pps), technical, trade-related, and other administrative and support service activities (by 5.9 pps); a higher (and rising) share was recorded particularly for telecommunications services (by 3.4 pps). That export competitiveness of knowledge-intensive services is weak is also evident from their market share in the EU, which is not rising. Indicators of cost-competitiveness also reveal relatively high unit labour costs of these services, which is a consequence of low productivity in comparison with the EU.

Share of knowledge-intensive non-financial market services in total exports of services, 2015

In electronic communications, competition is fairly strong in terms of broadband internet access, but competition in mobile telephony still lags significantly behind the EU as a whole. Fixed telephony (with the exception of internet – VoIP – telephony) has been losing market share in recent years and is increasingly being replaced by mobile telephony. In both segments market concentration is relatively high and approaching the EU average only slowly. If Slovenia is at the tail end on this competitiveness indicator in mobile telephony, it is already in the upper quarter of EU Member States in broadband internet access, given the (low) market share of the leading provider. According to the most recent data available, in 2010  the prices of telephony services were for the most part lower than the EU average, but on the basis of the dynamics of the prices of telephone services (from the HICP), it can be concluded that by 2016 the gap had narrowed (or even reversed) due to a further 10% price reduction in the EU. In autumn 2015, the costs of internet use were mostly slightly higher than the EU average.

In electricity and gas supply, the competitive behaviour of providers is spurred by numerous customer switches between them. According to the Energy Agency, after the deregulation of the market in 2007, the number of consumers switching electricity providers increased markedly only in this decade, first peaking in 2012 (over 55,000 or 5.9% of consumers) and then in 2015 (over 66,000 consumers).  The rate of competition on the electricity generation market is low, but comparable with that in the EU as a whole;  competition on the retail market is stronger. In the period from the deregulation of the market up to 2015, the Herfindahl-Hirschman Index (HHI) for electricity supply to final consumers dropped from 1,766 to 1,369 (medium market concentration); the structure of the providers changed even more. In the first half of 2016, the retail price of electricity for households and industry, excluding taxes, was almost 20% lower than on average in the EU. On the natural gas market, the arrival of a new provider led to sharp price falls in 2012, and in the first half of last year only the gas price (excluding taxes) for industrial consumers remained slightly higher than the EU average. After almost no instances recorded of providers being switched in previous years, more than 11,000 consumers (8.6%) switched providers in 2012 and more than 8,000 in 2015.

Discrepancies in energy prices between Slovenia and the EU average

Inward FDI flows indicate a significant improvement after 2013, while outward FDI remains modest. The increase in inward FDI in recent years is mainly a consequence of higher equity capital inflows due to the acceleration of privatisation and the generally higher sales of equity stakes in Slovenian companies. There have also been more expansions of existing foreign-owned companies in Slovenia. The SPIRIT survey indicates a continuation of favourable trends in 2017. As many as 37.5% of companies with foreign capital in Slovenia that disclosed their plans for investment are planning to expand in Slovenia in 2017, which is 6.4 pps more than in 2016. On the other hand, outward FDI has been rising only modestly since 2014, following a decline in 2010–2013, and in 2015 its stock was still 11.1% lower than its 2009 peak. The flows in 2016 do not indicate any improvement in this area.

Slovenia remains among the EU countries with the lowest inward FDI stock as a share of GDP. Although the stock of inward FDI as a percentage of GDP had increased to 30% by 2015 (an increase of around 8 pps compared to the beginning of the crisis), Slovenia remains among the EU countries with both the smallest stock and the smallest increase in inward FDI as a share of GDP. A smaller share than in Slovenia is recorded only by Greece and Italy. In terms of outward FDI relative to GDP among the new Central European EU Member States, Slovenia lags only behind Hungary and Estonia, but both of them have significantly larger shares.

Stocks of inward and outward FDI, as a % of GDP

With increased business opportunities, in 2016 early-stage entrepreneurial activity for the first time more distinctively exceeded the level seen before the crisis. Since the beginning of the crisis, it first increased more noticeably in 2012 and 2013, when the share of necessity-driven early-stage entrepreneurs strengthened due to increased self-employment. On the other hand, the improvement in 2016  mainly reflected a significant increase in the share of opportunity-driven enterprises, which is favourable from the aspect of the potential for fostering innovation activity, value added growth and job creation. The share of established entrepreneurs (those who have been in business for more than 42 months) also increased more visibly last year after having declined for several years, which is another favourable shift, also from the perspective of the next stage of the business process, when enterprises are transitioning from the early into the next phases of development. The share of established enterprises is very important for these enterprises, given that established enterprises represent a significant source of growth and support for new micro and small enterprises.  The share of necessity-driven entrepreneurs also increased further in 2016, thus exceeding for the first time the average for the EU Member States that were included in the GEM survey.  The rates of early-stage and total entrepreneurial activity also surpassed the EU average in 2016.

The share of enterprise births exceeds the share of enterprise deaths; new enterprises are mostly micro enterprises; the number of high-growth enterprises remains low. The share of enterprise deaths, which had persisted at a high level until 2013, was large (2013: 9.0%) but the share of newly established enterprises was even higher throughout the 2009–2014 period (11.0%).  However, the majority of newly established enterprises were micro enterprises with only one to four employees (which created around 96,000 jobs in total in the six-year period); moreover, most of these enterprises have not attained high growth rates in the years following start-up, as the number of high-growth enterprises  has stagnated at an exceptionally low level since 2012 and their share in total enterprises is among the smallest in the EU. The innovation activity of small enterprises, one of the key possibilities for increasing value added and number of employees, is also low (see Indicator 2.15).

Early-stage entrepreneurial activity in Slovenia and 22 EU Member States included in the GEM survey, 2016

The share of adults with tertiary education has exceeded the EU average since 2014. Given the long-term trend of high participation of young people in tertiary education, the share of tertiary graduates has been rising for a number of years, albeit at a slower pace of late, this attributable to a decline in the number of graduates for demographic reasons (a decline in student enrolment due to the smaller generations of young people). The share of women with tertiary education is higher than that of men, the gap between the two groups being wider than for the EU as a whole. The growth of the share of tertiary-educated persons increases a country’s human capital as a factor of the competitiveness of the economy and is favourable given the anticipated increase in the business sector’s needs for this kind of workforce.  However, the level of education attained does not necessarily ensure appropriate skills and competencies for work. In the areas for which data are available, particularly literacy and digital skills  are seen as problematic with tertiary graduates in Slovenia. There is also room for improvement in numeracy skills.

The share of tertiary-educated young people is higher than the EU average. In the 30–34 age group, however, it is no longer rising. In 2016 it stood at 43.1%, which is higher than the long-term average, the average of the EU (39.0%) and the Europe 2020 Strategy target of 40%. Despite the currently favourable situation, demographic change (i.e. smaller generations of young people entering the labour market) could lead to a shortage of appropriately educated people in certain occupations. A favourable shift in this direction, on the other hand, is the significant increase in the share of tertiary-educated people in the 25–29 age group in 2016. This surpassed the EU average for the first time, which is partly attributable to the deadline for completing studies under the pre-Bologna study programmes.  The share of tertiary graduates in the 20–24 age group is, however, still low by international standards, which suggests low efficiency of the tertiary education system. Slovenia also lags behind the EU average regarding the share of tertiary graduates in the middle and higher age groups (45–54 and 55–64).

Share of the population aged 30–34 with tertiary education, 2nd quarter of 2016

Public expenditure on education (as a % of GDP) is lower than the EU average, while private expenditure is comparable.  Public expenditure has been declining since 2012. In 2015 it accounted for 4.65%  of GDP and was significantly lower than Slovenia’s long-term average at all levels except pre-primary education. The several-year downward trend has been primarily a consequence of the Government’s fiscal consolidation measures, but also of certain other measures to rationalise the use of public expenditure on education.  In 2013 (the latest international data) education expenditure was lower than the EU average for the first time. This holds true for the upper secondary and tertiary levels of education, while expenditure on pre-primary, primary and secondary education was higher than the EU average. Private expenditure on education stood at 0.64% of GDP in 2015, which is lower than the long-term average and, according to data for 2013, comparable with the average for those EU Member States that are also OECD members (i.e. the EU-22). 

Expenditure (both public  and private) per participant in education is low, although it is rising. Despite the decline in the number of students enrolled in tertiary education, expenditure per participant has increased for all educational institutions in the last few years and exceeds the long-term average. However, it remains lower than the EU-22 average  except for expenditure on pre-primary and primary education, which is higher than in the EU as a whole. Expenditure on upper secondary and tertiary levels is significantly lower compared with the EU as a whole, owing to the higher participation of the population in education, which makes it difficult for Slovenia to improve the quality of education.

Expenditure on educational institutions per participant, in PPS USD, 2013

The participation rate for adults (aged 25 to 64) in lifelong learning  is somewhat higher than the EU average, although it has declined noticeably since 2010. Since 2013 it has stagnated, despite the improvement in the economic situation and labour market conditions, which has made it easier for companies and households to finance education. It is lower than both the objective of the strategic framework for European cooperation in education and training (Education and Training 2020/ET 2020), which is 15%, and the objective of the Resolution on the Slovenian Master Plan for Adult Education 2013–2020, which is 19%. The low participation rates of less-educated people and older people are particularly problematic and these have fallen further since the onset of the crisis.

The participation of the working-age population (25–64) in lifelong learning has yet to recover from the decline during the crisis. It stopped falling in 2015 and is still higher than the EU average. The decline of the participation in lifelong learning across all occupational groups and in most sectors during the crisis hinders the adjustment to changes in the workplace and weakens the competitiveness of the business sector. Broken down by sector, in 2015 participation in lifelong learning was highest in education and lowest in construction; it is on average higher in those sectors that have larger shares of people with tertiary education.

Participation of employed persons aged 25–64 in lifelong learning, 2015, in %

R&D expenditure (as a percentage of GDP) has been above the EU average since 2010, but declining since 2014 primarily owing to lower public investment. After several years of growth, R&D investment declined by one-tenth in real terms in 2012–2015, mainly on account of lower public expenditure since 2012. The business sector’s share in total R&D expenditure has increased further and is significantly higher than in the EU.  The share of researchers  in the business sector, at 53.1% in 2015, is also considerably above the EU average (2015: 48.7%). In 2009–2015 the business sector increased R&D investment by 42.2% in real terms, partly as a result of funding from the European Commission (where co-funding by enterprises was required) and cohesion fund receipts for financing centres of excellence and competence and development centres in 2010–2013. Throughout the period, R&D financing was also favourably affected by R&D tax relief.  In 2009–2015 almost one-third of R&D tax relief was claimed by companies in the pharmaceutical industry, one-tenth each by manufacturers of motor vehicles and manufacturers of electrical equipment, and one-fifth by various service activities, primarily knowledge-intensive services. 

The weak cross-financing of R&D does not foster cooperation and knowledge-transfer between sectors. R&D expenditure of the public sector (the government and the higher education sector) has been shrinking since 2012. In 2015 it was nominally lower than before 2008, which affected particularly public research and higher education institutions, given that each sector is mainly financing its own R&D. The share of the government sector’s R&D expenditure allocated for financing research in the business sector has declined significantly in recent years: in 2015, it totalled 16% of its total R&D expenditure. Meanwhile, the business sector allocated less than 4% of its total R&D expenditure for financing research undertaken by the public sector. The small share of R&D cross-financing is reducing cooperation between sectors and the transfer of R&D results, which is vital to reach synergies and increase the efficiency of R&D investment. Funds from abroad represent an increasingly important source of R&D funding in Slovenia. In 2015, these accounted for 10.6% of total funds. The majority of this funding comes from investment by the European Commission and the business sector abroad.

R&D expenditure by source of funds, Slovenia

The share of science and technology graduates is high, but their annual number is decreasing. Since 2005 Slovenia has made significant progress in promoting enrolment in science and technology. Although in the last few years the share of science and technology graduates has no longer been rising, it was still higher in 2015 (at 24.9%) than before the crisis and higher than the EU average. As since 2013 the number of science and technology graduates has been declining for demographic reasons, while companies’ demand for them, with rising technology intensity and digitalisation of operations, is set to increase according to some estimates,  it may soon become difficult for Slovenia to ensure an adequate number of this kind of personnel.  This may also a consequence of higher-paying job opportunities abroad and consequent emigration. Low enrolment will be particularly problematic in the areas of computer science, electronics and automation, fields that are already dealing with a shortage of tertiary-educated personnel, and the accelerated digitalisation of the economy will make this problem even more acute.

The share of new doctors of science and technology is significant, but the decline in their number is problematic from the point of view of strengthening innovation potential. Their share has mostly been above the EU average for years, which is a consequence of long-term enrolment-promotion planning by the Government (the Government incentives Young Researchers, Young Researchers for the Economy, etc.).  Their number is also higher than before the crisis, but in 2014 and 2015 it declined as a result of reduced funding for young researchers. Owing to lower enrolment in doctoral science and technology programmes, similar trends are also expected in the future. Furthermore, the knowledge of this staff is not sufficiently exploited to increase the competitiveness of companies, given that certain support instruments have been abolished (for example funding of the Young Researchers for the Economy programme) or are not longer being financed (for example centres of excellence and competence centres). New instruments (such as strategic development and innovation partnerships) should therefore be launched as soon as possible in order to enhance the involvement of academia in the development of innovative solutions for companies. Strengthening the acquisition of entrepreneurial skills within the framework of doctoral studies and regulating university spin-off creation would make it possible for university researchers to engage in entrepreneurial activity and establish high-technology businesses.

Share of science and technology graduates in the total number of tertiary education graduates, 2014

Innovation activity of enterprises is stagnating and lags behind the EU average. In 2012–2014, 45.9% of enterprises were innovation-active in Slovenia, which is slightly less than in the previous three-year period (2010–2012) for which comparable data are available.  The share of innovation-active enterprises (IAEs) in the EU rose minimally, but the most innovation-active Member States increased their lead on this indicator. The share of large innovation-active enterprises in Slovenia exceeds the EU average, while the share of small enterprises lags behind, which cannot be simply attributed to the differences in the average number of employees per enterprise between countries.  The share of innovation-active enterprises in manufacturing remains traditionally higher than in the service sector, but in both it is 10 pps to 20 pps lower than in the most innovative countries, reducing the competitiveness of Slovenian enterprises. In those EU Member States where the share of IAEs declined in 2012–2014, the gap between the manufacturing and service sectors, similarly to Slovenia, widened further. In the service sector, the most innovation-active enterprises in Slovenia are in computer services (72.5%). This is close to the EU average but significantly lower than in the leading Member States (over 85%). In knowledge-intensive services together  the share of IAEs amounts to 55.6%, compared with more than 60% in the best-performing Member States. Knowledge-intensive services (e.g. ICT services and consultancy services) significantly influence the strengthening of innovation activity across all sectors and hence contribute to the improvement of competitiveness in general.

Share of innovation-active enterprises in manufacturing* and services in 2012–2014, as a % of all enterprises

The number of patent applications per million inhabitants filed with the European Patent Office (EPO) is lower than before the crisis, but significant progress has been made in EU trademarks. According to data on the number of first  patent applications with the EPO, Slovenia has widened its gap with the EU average since the beginning of the crisis. However, it remains significantly more successful than other countries in Central and Eastern Europe with regard to the degree of patentability, which is measured by the number of patent applications per million inhabitants. Estonia, the country with the second best results in this group, reached only 60% of Slovenia’s performance in 2016. The inventive capacity of enterprises, which is also partly reflected in the number of patent applications on the basis of the first application, also depends on the structure of the economy, as some technologies  have more patentable products than others. According to the international WIPO methodology, more patentable technological fields are: medical technology, digital communications, computer technology, and technology related to electrical energy, machinery and apparatus.  In 2010–2016, half of all patent applications derived from these technological fields, the majority of them having been filed by large enterprises (EPO Annual Report 2016, 2017). In EU trademark  applications,  Slovenia has already come close to the EU average, although in recent years their number has risen less than on average in the EU. In Community design  protection, Slovenia’s gap remains wide, which may be due to creative industries being insufficiently used to enhance the competitiveness of products. In both areas of legal protection, the number of applications is increasing more rapidly in Slovenia than in the EU. This indicates that Slovenian applicants are increasingly interested in the legal protection of these rights because of the lower costs and faster implementation of protection than in the case of patents; they are also easier to use in services, a sector populated by many micro and small enterprises.

Number of EU trademark applications and registered Community designs with the EUIPO*, per million inhabitants

Slovenia continues to lag behind the EU average in terms of internet use and access to the internet, which is one of the signs that it is not sufficiently prepared for digitalisation. The percentage of regular internet users and households with internet access remain below the EU average and lower than in a number of new Member States. This is a consequence of a wider digital divide from the point of view of the age and education structure of the population and in turn greater differences in e-skills; at the same time, lower internet use is also recorded for population groups with lower income. The gap in the use of higher-capacity broadband internet access has also been widening since 2011. The differences from the EU average are particularly significant when it comes to faster access, but there is also a difference in the price of fixed broadband access.  The key for digitalisation is the use of modern technologies and appropriate digital skills. This is where Slovenia lags behind the EU average, as it performs worse than the EU as a whole in both basic and advanced skills for the use of digital technologies and has a significantly larger share of inhabitants who do not use the internet or have only low digital skills.  The use of more advanced e-services (such as online shopping, online banking and e-administration services) is consequently much lower than in the EU generally. Less than one-fifth of enterprises have a high or very high digital intensity index (this measures the intensity of the use of ICT services). The share of these enterprises is otherwise similar to the EU average, but the gap with leading EU Member States in this area is considerable. The digitalisation of Slovenian enterprises is also impeded by difficulties in recruiting appropriate ICT specialists, a problem that is much more severe than elsewhere in the EU

Slovenia also lags behind the EU average in the use and availability of more advanced e-government services. The availability of modern e-services of public institutions can significantly reduce the costs of public administration and increase the savings of enterprises, households and other public institutions. The use of simple e-government services is equal to the EU average, but Slovenia lags significantly behind in more advanced types of online interaction with public authorities. The share of internet users who return completed forms to public authorities electronically is significantly lower than the EU average; Slovenia also lags behind the EU average in the availability of forms pre-completed with data that are already available to the public administration. Regarding open data  that enable further connectivity of data and new knowledge-creation, Slovenia even ranks last among all EU Member States.

Digital index for enterprises and their difficulties in recruiting ICT specialists, 2016

Trust in institutions  remains low. Having declined significantly since the beginning of the crisis, it is now among the lowest in the EU. According to the latest survey, the proportion of respondents who trust the Parliament and the Government has risen slightly compared with November 2015 and May 2016. However, trust in political parties has remained very low and, similarly to trust in the Parliament and the Government, among the lowest in the EU. Trust in local authorities, on the other hand, has improved noticeably. In November 2016 it was 11 pps higher than one year before, though still below the EU average. Dissatisfaction with the current economic and general situation in Slovenia persists, despite the improvement in macroeconomic indicators. Specifically, the most recent Eurobarometer data show that respondents remain dissatisfied with the employment situation in Slovenia (85%) and the situation of Slovenia’s economy (72%), but the proportion of those who perceive the current situation as bad has declined in both areas. The majority also expect the employment situation, economic conditions and their life in general to remain the same over the next year.

Trust in the EU and its institutions rose. According to the latest survey, trust in the EU and its main institutions is slightly higher than measured one year earlier, though still significantly lower than at the onset of the crisis. In November 2016 the proportion of respondents who trusted the EU was seven percentage points higher than one year before and again above the EU average. In Slovenia around one-third of respondents trust the European Commission, the European Parliament and the European Central Bank, but all these figures remain lower than on average in the EU. Almost half of Slovenians still believe that things in the EU are heading in the wrong direction. This continues to be mainly related to dissatisfaction with how the EU is dealing with the refugee crisis, as respondents in Slovenia see (im)migration (58%) and terrorism (36%) as the two most important issues currently faced by the EU. In contrast to previous years, a smaller proportion of respondents perceive the economic situation to be the EU’s main concern (16%).

Trust in EU institutions, Slovenia

The fertility rate, at around 1.57 children per woman of childbearing age since 2010, was at the EU average in the three years to 2014. Following a short period of growth, the number of births started to fall again in 2011, not only because women are having children later, but also due to a faster decline in the number of women of childbearing age. This has been declining continuously ever since 1997 and in the three years to 2014 fell by an average of 6,400 annually. The mean age of mothers at childbirth continues to increase by around one month per year: in 1980, 70.3% of all children were born to mothers in the age group of 20–29 and 15.5% to mothers in the age group of 30–39, compared with 43.8% and as much as 52.1% respectively in 2015. Judging by the size of generations and assuming there is no change in fertility rates or family policy (this is otherwise favourable by international comparison), it can be inferred that the number of births will also decline in the years to come. The fertility rate that ensures the natural replacement of the population (2.1) was last reached in Slovenia in 1980.

Life expectancy in Slovenia has been increasing in the last few years and surpassed the EU average in 2014. The main factor in the increase has been higher life expectancy for men, which reached the EU average, while life expectancy for women has already been higher than the EU average since 2008. Life expectancy in Slovenia increased by almost five months per year, on average, in the ten years to 2014, compared with three months per year in the EU as a whole. This improvement in longevity is attributable to various factors, such as higher education, better socio-economic conditions, healthier lifestyles and advances in medicine. Life expectancy for people aged 65 remains just below the EU average, on the other hand, which indicates there is still some room for improvement in improving the lifestyles of older people.

Mean age of women at childbirth and fertility rate in EU countries

In the last few years total net migration has been low in Slovenia, primarily owing to the large number of Slovenian citizens emigrating from the country, as the positive net migration of foreigners has remained roughly the same. Since 2010 positive net migration has totalled less than 500 people per year; in the first two years, this was a consequence of lower immigration of foreigners, since 2012 of increased emigration of Slovenian citizens. In 2012–2015 more than 8,000 Slovenian citizens per year moved abroad and around 2,500 came back. The negative net migration of citizens – a constant feature since 2000 – thus increased significantly in 2012–2015 owing to higher emigration. Almost half of the emigrated citizens moved to Austria and Germany, with around a tenth going outside Europe. Among the foreign nationals moving to Slovenia, the majority (approx. 70%) still come from other former Yugoslav republics. In 2015, 43.8% of foreigners moved to Slovenia to find work, but family reunification had become a slightly more important reason for immigration than employment, reflecting a trend since 2011 and attributable to fewer opportunities for new employment due to the crisis (while many of the foreigners who stay are later joined by their families).

People emigrating from Slovenia are slightly older and better educated than those who immigrate. A total of 30.8% of emigrated citizens over the age of 15 had completed at least higher education, which is the largest share in the last five years for which data are available; most settled in Germany and Austria (together 37.3%). Among the immigrated foreigners older than 15 years, only 13.0% had tertiary education (though this is in fact the highest percentage so far) and just over half had completed upper secondary education. Slightly less than 5% of all immigrated foreign nationals came to Slovenia to study. In 2015 the average age of all immigrants was around 32.3 (of foreign nationals: 31.1), while the average age of emigrants was 35.1 (of citizens: 33.3).

Emigration from and immigration to Slovenia, 1995–2015

The age-dependency ratio has been rising rapidly in recent years owing to the declining number of working-age people and a rising number of older people. This situation emerged in 2012, not only because a large post-war generation exited from the labour force and joined the ranks of the older population, but, indeed mainly, as at the same time smaller cohorts of people born in the early 1990s started to enter the group of the working-age population. While in 2011 the number of 20-year-olds (who joined the working-age population that year according to the definition) was still 7,000 higher than the number of 65-year olds (who joined the ranks of the older population), the opposite was the case in 2016: the number of 65-year-old people was 7,000 higher than the number of 20-year-olds. The number of older people is also rising on account of higher life expectancy. In 2016 there were 23.9 young and 29.6 older people (together 53.5) per 100 working-age people in Slovenia. Projections show that the number of older people will continue to increase for three decades, when the generations born up to the beginning of the 1980s (when around 30,000 children were born per year, after which almost 10,000 fewer) will be transitioning into old age. The decline in the working-age population means a decline in potential labour force and, hence, the need to adjust the systems for funding social protection and the demand on the labour market accordingly. With the current organisation of social protection systems, the decline in the working-age population and the increase in the age-dependency ratio represent a growing problem in terms of financing.
 
In 2016 there were already almost a quarter more older people than children in Slovenia. The number of older people (over 65 years) exceeded the number of children for the first time in 2004, and it is rising much faster than the number of children (by 2.5% per year in the last four years, the number of children by 1%). Among older people, the number of those over 80 is rising particularly strongly, and the over-80s already account for 5.0% of the total population (in 2004: 2.9%). The increase in the share of older people indicates the urgent need to adjust society, the environment and social systems to the changes in the age structure of the population.


The young-age-dependency ratio, the old-age-dependency ratio and the ageing index, 2016

Against a background of economic recovery, the employment rate has risen for the third consecutive year. Having exceeded the EU average before the crisis, it fell during it and remained below the EU average until 2013. Following the rebound in economic activity, however, the rate has been rising. Owing to an above-average fall in activity in construction and low-technology manufacturing industries, which are dominated by male employees, the employment rate for men declined more during the crisis (though it remained higher than the rate for women). Young people (15–20 years) were particularly affected by the crisis, especially owing to their high exposure to fixed-term contracts, which were not being extended during the crisis, and a decline in student work. The employment rate for this demographic therefore fell more than for other age groups in 2008–2013. Since then it has been rising due to increased hiring, a larger volume of student work, demographic trends and active employment policy programmes targeted at young people. The employment rate for older people (aged 55–64) in 2016 was higher than before the crisis, mainly as a result of the pension reform and the demographic effect of employed persons from younger cohorts entering the group of older workers, thereby increasing the employment rate for this group. Nevertheless, the employment rate for older people is still one of the lowest in the EU.

The employment rate for low-skilled workers dropped notably in 2016 following two years of growth. It fell the most in 2008–2013, owing to a significant decline in activity in construction and manufacturing, i.e. sectors that mainly employ a low-skilled workforce. By 2015 it had risen strongly owing to the structure of economic recovery. Last year it declined, which we estimate could be due to a further significant fall in the number of unpaid family workers, who mainly have a low level of education. Similar to other countries in the EU, the employment rate for those with higher education declined the least during the crisis, mainly as a result of hiring in public service activities and a smaller fall in activity in sectors that have a better-educated workforce. Last year, the rate rose slightly again. In 2016 particularly the employment rate for people with upper secondary education was up relative to 2013, this owing to a broad-based recovery of the labour market especially in the last two years.

Change in the employment rate by population group, between 2008 Q2 and 2013 Q2 and 2013 Q2 and 2016 Q2

With the economic recovery, the unemployment rate has been declining since 2013 but remains almost twice as high as before the crisis. After bottoming out in mid-2008, the unemployment rate according to the labour force survey definition rose sharply during the crisis. With the recovery of economic activity, it started to fall in 2013. By the second quarter of 2016 it had dropped to 7.8% and was lower than the EU average, to which it had otherwise come fairly close even during the crisis. At the onset of the crisis, the adverse effects on manufacturing and construction, sectors where a male labour force predominates, caused the unemployment rate for men to rise more than the unemployment rate for women. In 2012 the unemployment rate for women nevertheless again exceeded the rate for men, and by 2016 the gap between the two had widened somewhat further. In the last few years the unemployment rate for people with upper secondary, secondary and low education has declined the most, in line with the structure of the recovery of employment, at first mainly owing to hiring through employment agencies, which provide labour to the manufacturing sector, and, in the last two years, to increased hiring in most other sectors. Young people (aged 15–24) were hit hardest by the crisis, their unemployment rate having risen to 24.1% in 2008–2013 before dropping to 13.7% by 2016.
 
The long-term unemployment rate fell slightly for the second consecutive year, but every second unemployed person still remains unemployed for more than one year. As a result of weak demand for labour, the long-term unemployment rate rose sharply in 2009–2014; by 2016 it had dropped slightly owing to more favourable employment prospects and active employment policy measures, but the share of long-term unemployment in total unemployment remained high. It was the long-term unemployment rate for young people that rose the most during the crisis and it was also that rate that dropped the most in 2015 and 2016. The increases in the rates for men and women were similar in the 2009–2014 period.

Change in the unemployment rate by population group, between Q2 2008 and Q2 2016

After increasing for two years, the prevalence of temporary employment declined slightly in 2016. In 2008–2013 the share of temporary employment in total employment dropped, mainly as result of companies’ unwillingness to extend fixed-term contracts and the reduction of student work. In 2013 the share also declined as a result of legislative amendments adopted to reduce the segmentation on the labour market and increase its flexibility. In the next two years the share expanded again, most likely due to employers’ caution in hiring for an indefinite period of time amid the uncertain recovery and due to an increase in student work. The decline in the share of temporary employment in 2016 could be related to higher confidence in the economic recovery or the more favourable business climate. The share of temporary employment, which continues to exceed the EU average, is still the highest among the young (the 15–24 age group). Similarly to other countries, it is higher for women than for men.

In 2016 the share of part-time employment in total employment declined for the second year in a row, but it remains higher than before the crisis. In the second quarter of 2016 it totalled 9.3%, 1.4 pps less than in the second quarter of 2015. The change is estimated to be due to greater confidence in the economic recovery and, in turn, to an increase in full-time employment. In 2008–2014 the share rose slightly more than in the EU as a whole, which, in our view, was primarily a result of the greater significance of student work for total youth employment. Precisely owing to the prevalence of student work among young people (aged 15–24), the share of part-time employment is largest in this age group, where it is also significantly above the EU average.

Shares of temporary employment in total employment among youth aged of 15–29 in Slovenia and the EU and the share of student work in total youth employment

Despite the stagnation of the minimum wage in the last two years, the ratio of the minimum to the average wage remains high. As a result of the crisis and changes to legislation, it is significantly higher than before the crisis and the highest (49.9% in 2016) in the EU. The ratio is also influenced by the relatively low average wage, which reflects the structure and the low value added of the economy. With the amendment to the Minimum Wage Act, three allowances have been excluded from the calculation of the minimum wage as of 2016. The allowances for unfavourable working time are also exempted from the minimum wage in most of the other EU Member States in which the minimum wage is enforced by law. Throughout the crisis, the growth of the minimum wage exceeded the growth of productivity in private-sector activities, but in the last three years, it has been lagging behind. While during the crisis Slovenia recorded one of the largest declines in economic activity in the EU, it was also the country with the largest real increase in the minimum wage; in some countries, the minimum wage remained almost unchanged for several years and even declined in others in certain years. In 2017 the amendment to the minimum wage legislation was also followed by a change in the tax treatment, which made it possible for minimum wage earners, who often work unfavourable hours, to remain eligible for the higher general allowance as they were before the exemption of  these three allowances from the minimum wage.

In the last two years the number of minimum wage earners has declined significantly but is nevertheless still 1.8 times as high as before the adoption of the new Minimum Wage Act. In addition to the recovery of economic activity, this decline was probably also due to the increase in the lowest base for calculating pension and disability insurance contributions paid by employers and the exemption of allowances for unfavourable work time. As a result of higher employment and wages, the proportion of minimum wage earners in total employment has also dropped notably in the last two years, but it is still much larger than in 2009 (5.4%; 2009: 3.0%). Despite an almost 40% decline in the last two years, the majority of workers receiving the minimum wage remain in private-sector activities. Meanwhile, the increase in the (though still small) number and proportion of minimum wage earners in public service activities in 2009–2016 was much greater (from 451 to 8,881 and from 0.3% to 5.4% respectively), which was mainly a consequence of the significant increase in the minimum wage and austerity measures of the public sector wage policy in 2010–2013.

Minimum gross wage, July 2016, in PPS

Last year the share of young people neither in employment nor in education or training (the NEET rate) declined, but it was still higher than at the beginning of the crisis. Owing to the high participation of young people in education, it was below the EU average despite the increase during the crisis. It was lowest for the 15–19 age group, the main reason being the high participation of young people in upper secondary education. In 2008–2013 the NEET rate rose significantly for young people at ages when they complete upper secondary or tertiary education and enter the labour market. In 2015 it was highest for those aged 25–29 (Slovenia: 16.7%; EU: 19.7%), which is when many enrolled students complete their studies. Specifically, young people are facing difficulties when transitioning from education to employment, which is linked to the insufficient response of upper secondary and tertiary education programmes to labour market needs and the lack of jobs. The 2015 decline in the NEET rate is attributable to the recovery of the labour market and better employment prospects, measures to promote the employment of young people, and demographic reasons (smaller generations of young people on the labour market). The NEET rate dropped significantly for young people aged 25–29, which is the age group targeted by many measures of the Youth Guarantee scheme implemented since 2014.

Share of young people (25–29) neither in employment nor education or training, 2008 and 2015, in %

After two years of decline owing to changes to social legislation and austerity measures, in 2014 social protection expenditure remained similar to that in 2013 but higher than before the crisis. In 2014 (the most recent data available), it was 3.2% higher in real terms than in 2008; as a share of GDP, it was up 3.1 pps. The growth of social protection expenditure in this period stemmed primarily from higher expenditure on old age as a consequence of the higher number of pensioners. Expenditure on unemployment also rose markedly, given the increase in the number of the unemployed during the crisis. Expenditure on social exclusion not elsewhere classified was also higher; this had started to rise rapidly with the onset of the crisis following a period of decline.
 
Slovenia lags behind the EU average in terms of social protection as a share of GDP, most notably in expenditure on unemployment benefits. The system nevertheless provides relatively good access to health services and reduces the poverty risk. Unemployment expenditure increased the most during the crisis, but Slovenia nevertheless has the widest gap with the EU average in this expenditure category. The duration of benefits being similar to the EU average, this gap is primarily a consequence of the small share of unemployment benefit beneficiaries among the unemployed compared with other Member States. Slovenia also has a relatively high replacement rate at the early stage of unemployment, one of the highest in the EU. The reform of the system of social transfers from 2012 has significantly altered and, in some cases, tightened the eligibility criteria for social transfers. According to the estimate of the Ministry of Labour, Family and Social Affairs, in 2012–2015 the number of persons claiming financial social assistance and income support also declined as a consequence of the provision stipulating that the state could encumber or prohibit the alienation of real estate to the benefit of the Republic of Slovenia for those beneficiaries who had received financial social assistance several times. The changes in social legislation which were adopted at the end of 2016 and entered into force as of 2017 abolished encumbrances on real estate for most categories of financial social assistance and income-support beneficiaries.

Social protection expenditure in PPS per capita, EU, 2014

Following a significant decline during the crisis, health expenditure rose in real terms in 2014–2016. Current expenditure (excluding capital formation) amounted to 8.3% of GDP in 2016 and 8.4% of GDP in 2015, according to the first estimate. Health expenditure is closely linked to HIIS revenue, as the HIIS is required to have a balanced budget. The higher revenue from contributions for compulsory health insurance in 2016 (by 3.5% in real terms) was mainly underpinned by growth in employment and earnings. Furthermore, most of the measures for balancing the HIIS budget that had been adopted during the crisis remained in force. In 2016 the additional funds were allocated for the expansion and improved evaluation of certain priority programmes (such as model practices, oncology, nursing homes and biological medicines) and the reduction of waiting times and for higher expenditure on sickness benefits. According to the first estimate, current public expenditure totalled 6.0% of GDP in 2016 and 6.1% of GDP in 2015; the share of public expenditure in total expenditure rose to 72.3% in 2016.

Slovenia lags behind the EU average in terms of health expenditure both as a share of GDP and per capita. Compared with the common (unweighted) average of the EU, which reflects data for all Member States, the share of current health expenditure in GDP in Slovenia was approximately at the EU average in 2015 and the level of total (public and private) health expenditure per capita had reached 80% of the EU average. A comparison with the weighted EU averages, where large countries have greater weight, on the other hand, shows greater lags. A significant difference between the arithmetic and weighted averages is seen in out-of-pocket expenditure, which is one of the key indicators of financial access to health services and whose share in total expenditure is highly dependent on the way a health system is being financed. In the weighted EU average, the share of out-of-pocket expenses is low (15.3%), given the large weights of Germany, France and the United Kingdom, three large countries with very low out-of-pocket expenditure. The unweighted EU average for out-of-pocket expenditure, which is more relevant for comparisons of health policies within the EU, is significantly higher (21.8%). According to the recommendations of the World Health Organisation, direct out-of-pocket expenditure is acceptable and does not jeopardise financial access to health services as long as it does not exceed 15% of total health expenditure.
 
Out-of-pocket expenditure in EU Member States, 2014

Slovenia’s gap with the OECD average in terms of expenditure on long-term care (LTC) is widening. LTC expenditure expressed as a share of GDP totalled 1.31% of GDP in 2013 and 2014 (average of 16 OECD countries: 2.0% of GDP); within that, public expenditure accounted for 0.95% of GDP (OECD: 1.8% of GDP) and private expenditure for 0.35% of GDP (OECD: 0.2% of GDP). Broken down by source of funding, the share of public sources rose slightly in 2014 after eight years of decline (to 73.1%); broken down by function of care, the share of expenditure on the health part of LTC was up (to 67.3%).
 
The proportion of long-term care in total expenditure on health in Slovenia is significantly lower than the OECD average. In 2005–2014 public LTC expenditure in Slovenia rose by 2.1% per year in real terms, while the OECD average rose by 3.8%. The majority of public LTC expenditure (as much as 89%) at the same time also belongs to health expenditure, where it represents the fastest growing component. It increased from 9.0% in 2005 to 10.3% in 2014. Despite its relatively rapid growth, this share is still significantly below the OECD average (15%). In some Scandinavian countries, expenditure on LTC (on health-related LTC) already accounts for more than 25% of total health expenditure. While more advanced OECD countries primarily increase public funding for long-term care at home, in Slovenia the ratio of institutional care to care at home had been deteriorating from year to year. In 2014 it improved slightly for the first time (in favour of LTC at home) as a result of increased HIIS funding for community nursing care. In 2014, 75% of total LTC expenditure was allocated for long-term care in institutions (homes for the elderly, special social welfare institutions, hospitals, etc.) and 25% for long-term care at home.

Proportion of expenditure on LTC (health component) in total current health expenditure, 2014

In 2016 pension expenditure increased more than in the previous two years; the budget transfer to the pension fund was lower, but still high. Pension expenditure including the annual pension allowance totalled EUR 4.353 billion in 2016 and was 1.1% up, for the most part owing to two pension indexations. Pensions were adjusted by 0.7% in January (extraordinary indexation for 2014) and by another 0.4% in October (extraordinary indexation for 2015). A further increase in expenditure was mitigated by there being no increase in the total number of pensioners, as the retirement conditions have been tightening from year to year due to the transition periods of the reform (the last one will expire in 2020). The budget transfer totals over one billion euros (2016: EUR 1.311 billion), as much as three-quarters being funds for covering the difference between PDII revenue and expenditure (Article 162 of the ZPIZ-2). This indicates a high degree of the pension fund’s dependency on the state budget and thus unsustainability of the pension system.

Pension expenditure as a share of GDP in Slovenia is still below the EU average, but it is rising faster due to the rapid ageing of the population. According to the most recent data available, the share of pension expenditure in GDP (12.6%) remained below the EU average in 2014. In 2008–2014 the share of pension expenditure in GDP increased more than on average in the EU, although the share of older people was rising more slowly and has yet to reach the EU average. Pension expenditure is estimated to have stabilised in the medium term in this period due to the effects of the Pension and Disability Insurance Act (the ZPIZ-2) (according to our estimate, it also hovered around 11% of GDP in 2016), but will start rising again in 2023 to gradually exceed 15% of GDP. This means that the new pension system (the ZPIZ-2) does not ensure long-term fiscal sustainability. In contrast, pension expenditure in the EU as a whole is projected to stay at the current level over the long term.

Selected PDII revenues and expenditures, Slovenia

After a decline in 2012 and 2013, gross adjusted disposable income has been rising in the last few years. In the first years of the crisis its growth slowed mainly as a consequence of a decline in economic activity and employment but was maintained by an increase in social transfers. In 2012 and 2013 gross adjusted disposable income contracted, mainly as a result of legislative changes in the area of social transfers. The recovery of economic activity and, in turn, labour market conditions (growth in employment and earnings) has contributed to renewed growth in disposable income in recent years. In 2015 Slovenia lagged 4.5 pps more behind the EU average in terms of gross adjusted disposable income per capita in PPS than in 2008.

Slovenia has a larger share of income from employment and a significantly smaller share of income from property and other current transfers in the structure of disposable income than the EU average. Owing to the improvement in labour market conditions, in 2014 and 2015 the share of income from employment (compensation of employees) rose in both Slovenia and the EU as a whole. The share of compensation of employees in Slovenia remains higher than the EU average and its increase of 1.3 pps relative to 2014 widened the gap in favour of Slovenia further in 2015. The share of social transfers in the total income structure does not diverge significantly from the EU average. Its increase during the crisis and in 2014 and 2015 was also similar to that in the EU. However, the share of income from property and other current transfers remains significantly smaller.

Gross adjusted disposable income of households and NPISHs in PPS per capita in Slovenia and selected EU countries, in 2015

Actual individual consumption, which is a measure of the standard of living of the population, has been rising again in recent years following the decline in 2008–2013. The strong growth in actual individual consumption seen in the pre-crisis period first weakened significantly at the beginning of the crisis, and in 2012 and 2013 consumption actually declined owing to the fall in disposable income. Since 2014, however, actual individual consumption has agan been rising, reflecting the recovery of economic activity and an increase in disposable income.

Since 2011 Slovenia’s gap with the EU average in terms of individual consumption per capita in PPS has been widening; it is larger than the gap in per capita GDP. The growth of disposable income at the beginning of the crisis played a significant role in retaining individual consumption at the level already achieved. It totalled 79.9% of the EU average in 2011. In 2012 and 2013, however, Slovenia’s gap with the EU average widened owing to the prolonged crisis. In 2014 and 2015 it increased further despite economic growth and the growth of actual individual consumption.

Disparities between EU countries in actual individual consumption are smaller than in GDP per capita, but Slovenia has a wider gap with the EU average on the indicator of consumption than in terms of GDP. The differences between the countries with the highest and the lowest levels of individual consumption per capita decreased slightly in 2008–2015. In 2015 the maximum gap in the indicator of GDP per capita in PPS totalled 1:5.6 (Bulgaria/Luxembourg) and the gap in the indicator of individual consumption per capita 1:3.3 (Bulgaria/Luxembourg).

Actual individual consumption in PPS per capita, 2015

People in Slovenia are more satisfied with their lives in general than people in the EU as a whole. General life satisfaction is still highest in the northern EU Member States and lowest in new Member States and those coping with significant fiscal problems. In autumn 2016 the proportion of satisfied people in both the EU as a whole and Slovenia was higher than in the previous survey in all four sub-areas measured by the Standard Eurobarometer: household financial situation, personal employment situation, employment situation in the country and economic situation in the country.

According to the Standard Eurobarometer Survey, the proportion of people satisfied with their lives returned to the pre-crisis level in Slovenia in 2016. Slovenian public opinion polls also show that in 2016 Slovenians were satisfied with their lives in general, more so than in the last fourteen years (7.06), while the average scores of satisfaction with the economic situation (4.10) and the Government (3.39) were the highest in the last six years.

When asked to identify two main issues at the personal level, Slovenian respondents, as in all previous years, again referred to pensions and the cost of living. At the country level, unemployment had been stressed as a significant problem in all previous years, but in the second half of 2016, health care provision also became a great concern, overtaking the economic situation of the country, another issue (alongside unemployment) that had been most frequently cited since the beginning of the crisis. In the survey conducted one year earlier, on the other hand, immigration had been emphasised as the greatest concern.

Satisfaction with personal financial and personal employment situation in Slovenia

People in Slovenia can expect slightly less than 59 years of healthy life; this is significantly below the EU average, though in recent years the gap has been closing. Despite the crisis, the number of expected healthy life years in Slovenia has risen significantly since 2011, while it has declined slightly for the EU as a whole. In 2014 the average number of healthy life years reached 61.6 in the EU and 58.7 in Slovenia. This is, however, an indicator that is mainly derived from subjective perceptions of limitations in daily living and shows the number of years a person is expected to live without disability or the need of assistance. An extension of healthy life years is expected to significantly contribute to slower growth in health spending in the future and, in turn, sustainable financing of health and long-term care in the long term.

After improving for several years, the ratio of life expectancy to number of healthy life years declined slightly in 2014. People in Slovenia spend only 72.4% of their lives free from any limitation (in the EU: 76.3%), which leads to their early retirement and increases expenditure on health and long-term care. In all EU Member States, this indicator shows a wide gap between men and women, which is largely a consequence of lower life expectancy for men; the gender gap in the number of healthy life years is significantly smaller or even reversed than that in life expectancy (in as many as 17 EU countries the number of healthy life years for men is higher than, or equal to, the number for women). In Slovenia the difference between the life-expectancy-to-number-of-healthy-years ratios for men and women is relatively small, as in Slovenia men not only have lower life expectancy but also a lower average number of healthy life years. The poor health status of Slovenian men, particularly those with a lower level of education, is also indicated by other health-status and health-inequality indicators and is mainly related to factors involving risky behaviour (smoking, alcohol and obesity).

Slovenia is also narrowing its lag behind the EU average as regards expected healthy life years at the age of 65. In the EU a person aged 65 can expect to live another 8.6 years in a healthy state; in Slovenia the indicator improved to as many as 8.2 years in 2014 (2013: 7.4 years). The favourable movement of this indicator in Slovenia is in all likelihood the result of successful preventive health care programmes for elderly people and the relatively high access to health services, which was also preserved during the crisis. However, for further improvement it will be necessary for Slovenia to increase investment in preventive care, in a faster development of long-term care services, and in the prevention and reduction of the burden of chronic diseases.

The proportion of years lived in good health, men and women, 2014

Slovenia has a high share of adults aged 25–64 years with at least upper secondary education and this share continues to rise. It has exceeded the EU average for the last ten years. It has risen for all age groups, but remains low for older age groups (45+ years), which is problematic from the points of view of the employability of older people if they become unemployed and the prolongation of working life. As the participation of older people in upper secondary education is low, it would be beneficial to increase its financial accessibility and encourage adults to enrol.

The share of young people (20–24 years) with at least upper secondary education has remained more-or-less unchanged in the last ten years and is among the highest in the EU. In 2016 it totalled 91.4%, compared with 82.6% in the EU as a whole. This large share is a consequence of the high participation of young people (15–19) in upper secondary education, which totalled 78.4% in 2014 and was higher than the EU average (61.9%). It also reflects the high completion rate in upper secondary education and the low share of early school-leavers. While there are no major differences between men and women in the respective shares for adults, in young people the share of men with at least upper secondary education is significantly lower than the corresponding share of women.

Share of young people, aged 20–24 years, with at least upper secondary education, 2nd quarter, 2016, in %

The at-risk-of-poverty rate in Slovenia has been below the EU average throughout the period analysed, but the gap narrowed strongly during the crisis. The faster increase in the at-risk-of-poverty rate in Slovenia compared with the EU average is estimated to have been due to (i) a larger decline in economic activity and employment in 2009–2013 than in the EU as a whole and (ii) certain austerity measures adopted in 2012 and 2013. Although in Slovenia the at-risk-of-poverty rate declined slightly in 2015 with the increase in disposable income, it is still higher than before the crisis. In 2007–2015 it fell for people older than 65 (by 2.2 pps to 17.2) but rose for those younger than 18 (by 2.9 pps to 14.2%) and the age group of 18 to 64 (by 3.8 pps to 13.6%)
 
In the last ten years, the highest at-risk-of-poverty rate was recorded for the unemployed (44.8% in 2015). The ratios between the at-risk-of-poverty rates for individual groups of the working-age population otherwise remain unchanged, but in data for 2015 some changes have been observed. Relative to the previous year, the at-risk-of-poverty rate for 2015 declined for the groups of unemployed and other inactive people, while it rose for the employed (by 0.6 pps to 4.7%). Within the employed, it dropped for self-employed people and those on fixed-term contracts, while it rose for people in permanent employment (for both full- and part-time employment).

Households with one adult person remain one of the most vulnerable population groups. These households include single women (40.4%), single-person households (35.4%) and single-parent households (32.5%). This can be attributed to housing costs (housing, water, electricity, gas and other fuels) representing a larger burden for single households (20.1% of disposable income in 2015) than for other household types.

At-risk-of-poverty rate by type of employment, Slovenia

The volume of greenhouse gas (GHG) emissions declined following the crisis. After rising during the times of economic growth, it dropped significantly with the large fall in GDP during the crisis and kept declining until 2014. According to the first preliminary estimate by ARSO (the Slovenian Environment Agency), in 2015 GHG emissions were 1% higher than in 2014 and 22% lower than their peak in 2008. Following the crisis, they declined across all source categories. The total decline was attributable primarily to lower emissions in the energy sector, followed by emissions from transportation and the consumption of fuels in industry and households. The significant decline in the energy sector, where emissions are almost entirely due to electricity generation in thermal power plants, mainly stemmed from the shutdown of one of these plants. The top position in terms of emissions is now occupied by transport. Emissions from this source had also declined slightly following the crisis, but remained approximately unchanged in the next few years. They are still high by international comparison, owing in part to the relatively favourable competitive conditions established through tax policies (the refund of excise duties) and strong international trade flows through Slovenia. The decline in emissions from the consumption of household fuels can be related to the milder weather. Emissions from industrial processes have risen slightly in the last few years, but since their share is modest, they have a relatively minor impact on the quantity of total emissions. The main component of GHG emissions is carbon dioxide, which is generated mostly by combustion of fuels; this is followed by methane and dinitrogen monoxide, which mainly derive from agriculture and landfilled waste.

The emission intensity of the economy as measured by the amount of GHG emissions generated per unit of GDP  is also falling but remains above the EU average. After declining in times of economic growth owing to faster growth in GDP than emissions, emission intensity remained more or less unchanged in the first years of the crisis. However, with the EU average decreasing further during the crisis, the gap with the EU widened. In 2014 the emission intensity in Slovenia improved and the gap narrowed significantly, but Slovenia nevertheless still produced one-tenth more GHG emissions per unit of GDP than the EU as a whole.

Emission intensity, 2014

The air quality issue in Slovenia is strongly related to excessive particulate matter (PM) pollution; since 2011 the PM concentration has declined owing to the lower needs for heating. Exceeding the daily limit values for PM is typical for the cold part of the year. During the heating season, PM pollution mainly stems from emissions from residential wood biomass combustion sources, followed by emissions caused by agriculture and by transport, particularly diesel-fuelled vehicles. PM concentrations in Slovenia are highest in poorly aerated basins, where even relatively low emissions can lead to excessive pollution. The exposure of the urban population to particle pollution has declined in general in recent years, partly as a result of milder winters, but is still relatively high; it has reached the EU average for PM10 while still exceeding it in PM2.5.

Another problem is the locally high presence of ground-level ozone, but owing to the milder weather in recent years, the situation has also improved in this area. As the formation of ozone requires sufficient sunlight, the excessive concentrations of ozone – in contrast to particulate matter – mainly occur during the summer months. They are mostly the result of road traffic, the main source of ground-level ozone precursors. Being significantly influenced by transboundary air pollution, the ambient concentration of ozone in Slovenia is highly dependent on wind blowing from the west and is the highest in the Primorska region. Owing to the high dependence on weather conditions, the multi-annual series of data does not indicate a clear trend. The urban population’s exposure to ozone has decreased in the last few years, but it is still slightly higher than the EU average.

Urban population exposure to PM2.5, 2014

The consumption of primary energy in Slovenia has declined significantly in the last few years and is likely to be lower than the 2020 target. Primary energy consumption declined by more than 10% in the four years to 2015, first primarily as a result of weaker economic activity, then owing to technological advancements in thermal power generation and the higher winter temperatures in some of the years and hence lower demand for heating. A faster decline in energy consumption, on the other hand, is impeded by the high level of energy consumed in transport. The total consumption is also affected by other factors, such as the schedule of regular overhauls in the nuclear power plant and significant annual river-level fluctuations. It was indeed the smaller nuclear and hydro power production that made the greatest contribution to the decline in total primary energy consumption in 2015 (by 0.9%). Energy intensity, i.e. the ratio of energy consumption to GDP, remains relatively high. Until 2007 energy intensity had mostly been rapidly falling, but then its decline slowed and it is still one-fifth above the EU average.

Final energy consumption is significantly influenced by high energy consumption in transport; in recent years, it has also reflected fluctuations in the consumption of energy for heating. In 2005–2015 final energy consumption was falling, but at a slower pace than in the EU as a whole. The volume of energy consumed by industry declined more than it did in the EU, while energy consumption in transport rose significantly, mainly owing to increasing transit through Slovenia. Household consumption of energy for heating declined primarily as a result of the installation of heating cost dividers in multi-dwelling buildings and increasingly efficient heating appliances, while the fall in 2014 was mainly due to the mild winter. In 2015 the consumption of energy for heating increased again because of a colder winter, which was also reflected in higher final energy consumption (by 2.2%).

Final energy consumption by consumer sector

Energy intensity in manufacturing is declining more slowly in Slovenia than in the EU as a whole; the share of emission-intensive industries in value added is larger than on average in the EU. After declining in 2008, the share of emission-intensive industries in the value added of manufacturing rose, particularly owing to growth in the chemical and pharmaceutical industry and in the manufacture of metals. In recent years it has been roughly the same as before the crisis. In the EU as a whole, where the share of emission-intensive industries is smaller particularly due to a smaller share of the chemical and pharmaceutical industry, the significance of these industries in the structure of total manufacturing gradually declines. Energy intensity in manufacturing is also above the EU average and it is falling more slowly than in the EU. The impact of emissions trading on production costs is therefore also greater than in the EU as a whole, which is harming business results and reducing the competitiveness of production. In order to reduce exposure to higher costs, it is therefore crucial for Slovenia – especially in a period of commodity price growth – to proceed with technological restructuring of enterprises and reduce their energy intensity.

Shares of emission-intensive industries in manufacturing and shares of manufacturing in the value added of the economy, 2014

The share of road freight transport, having increased relatively rapidly in the previous decade, has remained above the EU average in the last few years. In 2015 the number of tonne-kilometres performed by Slovenian hauliers again increased more than freight transport by rail (by 8 pps). The share of road transport in total freight transport thus rose slightly, to around 81%. Data for the first three-quarters of 2016 indicate balanced and more modest growth for both freight transport modes. The share of road transport thus remains more or less unchanged, hovering around 5 pps above the EU average, which places Slovenia in the middle third of EU Member States. From the environmental perspective, a faster shift from road to rail transport is desirable; this would be best achieved through modernisation of railway infrastructure.

The volume of freight transport per inhabitant is high owing to Slovenia’s transit location and the density of its transport infrastructure. In the period before 2005, the volume of freight transported by domestic hauliers (measured in tonne-kilometres per inhabitant) was comparable with the average volume transported by hauliers in the EU; in 2015 it was already 2.5 times as high. The increase is attributable to Slovenia’s position at the crossing of the V and X pan-European transport corridors (where transport also expanded with the enlargement of the EU) and its highly developed motorway network, the largest in the EU in per capita terms. At the same time, Slovenia also has a similarly high level of per capita freight transport by rail because of its extensive railway network and the connection with the port of Koper.

Slovenian hauliers perform more and more of their services abroad; at the same time, more and more foreign hauliers operate on Slovenian roads.  This trend has to do with the liberalisation of transport in the EU. In 2015 the distance of journeys performed in the territory of Slovenia by all hauliers (both domestic and foreign) again approached the high level from 2008. The distance of journeys performed by Slovenian hauliers (solely) abroad increased by 39%, while their journeys in their national territory and those that are at least partly connected to the territory of Slovenia (i.e. when goods are loaded or unloaded in Slovenia) declined by 13%. This indicates an increase in transport by foreign hauliers on Slovenian roads, which is also confirmed by data from toll stations. In 2008–2012 the share of foreign freight vehicles on Slovenian motorways rose by 15 pps, to 68%.

Road freight transport in Slovenia and the EU in 2015

The share of renewable energy sources (RES) in final energy consumption is higher than the EU average but is increasing at a slower pace. In the last decade it rose more markedly in 2009, when final energy consumption fell by almost 10% because of the crisis while the consumption of RES increased by around one-fifth. After that year its growth slowed significantly, in recent years also as a result of the lower consumption of RES for heating. Slovenia ranks just behind the first third of EU Member States according to this share, but it is in the last third according to its growth. In 2015 the share of RES was only 32% higher than the average for the EU, compared with 91% in 2004. In recent years RES consumption (which is highly dependent on natural endowments in individual Member States) has also been rising as a result of strong financial incentives.

In comparison with the EU as a whole, Slovenia still has a large share of traditional RES and less of other RES. Traditional RES (solid biomass and hydropower) account for more than 85% of total RES consumption in Slovenia, compared with just 60% in the EU overall. Smaller shares of other RES (wind, solar and geothermal energy, biofuels, heat pumps, and biogas) are recorded in only three EU Member States. While wind energy use is already widespread in the EU (13% of RES consumption), Slovenia has only a few wind farms. The use of heat pumps is also much more modest than in the EU as a whole and the shares of biofuel and solar energy consumption are 50% smaller. In 2005–2015 the share of other RES rose by 2.5 pps (in the EU as a whole by 4.8 pps).

In recent years the amount of RES grants has been rising, particularly in solar energy production. In 2005 EUR 16 million was paid to promote electricity generation from RES, the bulk of which was intended for hydroelectric power plants. Since 2010 the amount of RES grants has been strongly rising. In 2015, when supports for solar power plants prevailed, it exceeded EUR 112 million. With a shift towards more expensive energy sources, the amount of grants per unit of power generated from RES also increased several times over.

Share of RES in gross final energy consumption, 2015

Material consumption per capita, its structure and self-sufficiency in Slovenia are roughly comparable with the EU average. In terms of material consumption per capita, which is an indicator of sustainable consumption, Slovenia is on a par with the EU average; lower consumption is recorded for nine EU Member States. The breakdown of material consumption is comparable too, except for the slightly smaller proportion of biomass consumption (particularly fodder crops, timber and biomass products) than in the EU as a whole and a larger proportion of non-metallic minerals (sand, gravel and lignite). Like most other EU Member States, Slovenia is a net importer of materials, its net imports totalling around 10% consumption (average net imports in the EU around 4 pps more).

The bulk of material net imports are processed materials, in contrast to raw materials in the EU as a whole. In 2000 raw materials also predominated in the Slovenian breakdown by stage of manufacturing, but since 2007 their share has been rapidly falling. In 2015 it amounted to only 10%, the rest being net imports of processed materials (finished and semi-finished products). In the EU as a whole raw materials accounted for the largest part of material net imports throughout this period, while imports and exports of materials of higher stages of manufacturing were fairly balanced.

The resource productivity of the economy has improved since the onset of the crisis, but this has mainly been due to the decline in construction activity. In 2007–2012 productivity, expressed as a ratio of GDP to domestic material consumption, was rising faster than in the EU. Its growth then came to a halt, while continuing in the EU as a whole. The improvement in the first period was related to the sharp fall in construction activity and hence lower consumption of non-metallic minerals. Resource productivity came closest to the EU average in 2012, before again diverging to reach 82% in 2015. Higher resource productivity is recorded particularly by the most developed EU Member States.

Resource productivity and material consumption per capita, 2015

The quantity of total waste generated, which was declining during the crisis, has been rising in the last few years. In 2015 approximately 5.2 million tonnes of various types of waste was generated in Slovenia, around 10% more than one year previously and 16% more than in 2012, a year when the recorded quantity was also relatively low owing to a change in methodology. Waste from production and service activities, which accounts for 80% of total waste, had been rising more slowly, except last year when it increased slightly more. The majority of waste, around 90%, is generated in four sectors: (i) manufacturing; (ii) construction; (iii) electricity, gas and steam supply; and (iv) water supply, sewerage, waste management and remediation activities. The largest share is accounted for by construction waste, which has a high specific weight. The remaining fifth is municipal waste, i.e. waste from households and other waste of similar origin managed by the providers of mandatory municipal public services for environmental protection. The quantity of this waste increased by around one-quarter in 2012–2015. Particularly problematic is hazardous waste, where chemical compounds and other chemical waste predominate; it accounts for around 3% of total waste generated and is increasing in the long term.

Waste recovery is increasing faster than waste generation and the quantities of landfilled waste are falling. The total quantity of waste recovered in 2015 amounted to around 6.9 million tonnes, 13% more than in 2014 and almost twice as much as a decade before. However, as the share of backfilling or pre-treatment, which had been lowest at the beginning of the crisis, increases, the actual amount recovered was more than half lower. Recycling, a very desirable form of recovery from an environmental perspective, rose slightly for the second consecutive year, but it was still significantly lower than during the crisis. In the period after the crisis, its share more than halved, to 42% of total recovery. Landfilling, which is the least favoured option in the waste management hierarchy, continues to be successfully reduced. The quantity of landfilled waste had also been highest at the onset of the crisis, but following a steep decline, this waste accounted for only 4% of the total amount processed in 2015. The share of landfilled municipal waste also decreased further, as more than two-thirds of municipal waste is already collected separately and as residual mixed municipal waste must be treated before going to landfill; it totalled 23%, which is slightly better than the EU average.

In the area of municipal waste, Slovenia performs better than the EU as a whole. Despite the increase in 2014 and 2015, the quantity of municipal waste generated per person is still lower than the EU average (in 2015 by 28 kg or around 6%). Waste-management structure is also better than in the EU generally, as a larger share of municipal waste is recycled and a smaller share landfilled. Meanwhile, as many as six EU Member States have already reduced their shares of landfilled municipal waste to below 3% of total waste generated.

Municipal waste generated and landfilled, 2015

Having declined considerably in the previous decade, the consumption of mineral fertilisers and pesticides has been rising modestly in recent years. Both agricultural inputs observed had recorded similar declines, only that fertiliser use ceased to fall a few years earlier. Agricultural producers had been reducing fertiliser use until 2009, when one-third less main macronutrients (NPK fertilisers, i.e. nitrogen, phosphorus and potassium) per unit of agricultural area (UAA) were used than a decade earlier. After that, fertiliser consumption rose slightly. The total quantity of all active ingredients in pesticides sold (around two-thirds of which are estimated to be used in agriculture) had been declining more slowly; in 2013 it was around one-third less than ten years before, though it rose slightly in the next two years. The consumption of both inputs is above the EU average, but international comparisons are difficult to make, particularly for pesticides, where the figure on the quantity sold is the sum of active ingredients with different toxicity levels.

Agricultural efficiency, as measured by average yields of the most important crops and milk yield per animal, is rising in the long term but mostly lags behind the EU average. In 2015 the yield per hectare was again up on the ten-year average for both crops (i.e. wheat and maize). An increase in the yield may, as long as it is not too large, also indicate better exploitation of natural resources than in previous years. Compared with the EU average, it was lower for wheat and higher for maize. The gap with the EU is not diminishing, and the significant fluctuations between years mainly reflect differences in weather conditions. The relatively low average milk yield per animal is also rising in the long term, which is favourable from the perspective of the environmental burden per unit of GDP generated in the economy. The total environmental burden of livestock production measured by the number of animals per unit of agricultural area is also relatively high as a result of natural conditions, but is declining (i.e. improving) according to the latest survey results.

The share of agricultural holdings involved in controlled organic farming is rising and exceeds the EU average. A total of 5% of agricultural holdings with 9% of UAA were involved in controlled organic farming in 2015, which is significantly less than planned (20%) but around 3 pps above the EU average. Organic holdings are on average larger than non-organic farms, and their owners are generally younger and better educated than conventional farmers and tend to register more supplementary activities. The largest share of UAA is accounted for by permanent grassland intended for animal production, but the shares of other types of land are rapidly rising under the impact of increased demand. The area dedicated to the production of organic olives and vegetables has increased the most in recent years. Increases in organically farmed areas are also reflected in higher quantities of organic products and more organically raised animals.

Average yields of main crops and milk production

Tree felling is increasing over the long term, but in the last few years it has been particularly pronounced as a result of emergency removals in the aftermath of the ice storm and the spread of wood pests. In 2014 and 2015 around half more wood was cut per year than before the glaze ice damage, and twice the amount felled at the beginning of the previous decade. In recent years annual tree felling has come close to the maximum felling level determined in the forestry management plans, after lagging considerably behind in previous years. Tree felling intensity, which is expressed as a ratio of annual felling to the annual wood increment and had been fairly low compared with the EU average, rose significantly in these two years (to more than 70%). This is close to the level envisaged in the Action Plan, according to which tree felling intensity could be increased to 75% and 6.5 million m3 could be cut without jeopardising sustainable development. However, following the ice storm the structure of cut wood changed significantly: felling for tree-tending purposes, which normally accounts for the largest share, declined, having previously been on the rise, while the scope of sanitary cuts rose notably. In 2015 the severe tree damage caused by the ice glaze was exacerbated by the rapid spread of the spruce bark beetle. As a result, three times more wood had to be cut then ten years before, when the spruce bark beetle had previously caused the greatest tree damage until that time.

The increased felling is reflected not only in the higher production of raw wood categories, but also in a rapid increase in exports of the highest-quality wood in particular, which is an untapped potential for Slovenia. In the aftermath of the ice storm, the utilisation rate of felled wood declined, so that the growth of production fell slightly behind the growth of removal. The volume of pulpwood increased the most, while the volume of sawlogs and veneer logs, the highest quality wood and that which generates the highest value added, also rose. After the glaze ice damage, external trade in unprocessed wood increased much more than total production. While imports of unprocessed wood declined by around 20%, exports thereof rose by around three-quarters. Within those, exports of the highest-quality wood more than doubled. The share of total wood exports rose by 8 pps, while the share of exports of the highest-quality wood alone rose by 9 pps more, to 55% of total unprocessed wood exports.

Intensity of tree felling, 2010

Environmental tax revenue expressed as a percentage of GDP has stabilised since 2012; owing to the high excise duties on energy, it has remained significantly higher than before the crisis. In the last three-year period the level of environmental taxes paid into the state budget continued to rise in nominal terms, but with GDP expanding at a similar pace, their share in GDP remained approximately the same, at just below 4%. This was around 1.0 pp more than in 2008, primarily as a result of higher excise duty rates and higher, or new, other taxes (the introduction of CO2 tax on motor fuels, the sale of emissions allowances and the increase in annual road user charges).

More than three-quarters of environmental taxes are accounted for by energy taxes, with taxes on pollution becoming slightly more important in recent years. Revenue from energy taxes accounted for around 77% of environmental taxes collected in the last three-year period, the bulk being revenue from excise duties on liquid fuels. The consumption of liquid fuels is relatively high in Slovenia, given the large volume of transit and other road transport, which is also related to the dispersed settlement pattern and poorly developed public transport infrastructure. Around 12% of inflows came from transport taxes. The bulk of these taxes arose from annual road user charges, but their total share was lower than in 2008. In contrast, the share of taxes on pollution increased to around 10% in the period analysed as a result of the more broadly based tax on CO2 emissions. The share of taxes on the use of natural resources, which is low, was stable. Most of the environmental tax burden, around two-thirds, was borne by households, which can be attributed in part to methodological simplification according to which most motor fuel consumption, and hence energy taxes, is ascribed to households.

In terms of the environmental tax burden relative to GDP, Slovenia is at the top of the EU. Environmental tax revenue as a percentage of GDP was 1.5 pps higher in Slovenia in 2015 than on average in the EU. The high share is mainly attributable to the extensive use of motor fuels in road transport and the relatively high tax rate on energy. The implicit tax rate on energy totalled EUR 237 per tonne of oil equivalent of final energy consumption in 2015, which was higher than the EU average.

Revenue from environmental taxes, Slovenia and the EU, 2015

Economic growth is rising in all regions except Zasavska. Following the decline during the crisis, GDP has risen the most in nominal terms in the Obalno-kraška and the Primorsko-notranjska regions. It has dropped only in the Zasavska region, which has therefore widened its gap with the Slovenian average. This region also has the lowest GDP per capita, at only around 54% of the Slovenian average. The national average is exceeded the most by the Osrednjeslovenska region (by 41%), while Obalno-kraška has reached its level again after two years.

The gap between the regions and the EU average in terms of GDP per capita, which had mostly been widening during the crisis, narrowed in 2014 and 2015. Zahodna Slovenija is at 97% of the EU average, while Vzhodna Slovenija is at 67% and thus ranks among less developed regions in the EU. During the crisis, GDP per capita declined the most in the regions of Zahodna Slovenija, particularly Osrednjeslovenska and Obalno-kraška (in both by 14 pps in 2008–2015). In the regions of Vzhodna Slovenija, per capita GDP fell most notably (by 10 pps) in Zasavska, the region that has the widest gap with the EU average. Osrednjeslovenska was the only region to exceed the EU average throughout the period observed, but its advantage is gradually decreasing. In 2015 it surpassed it only by 15%, compared with 29% in 2008.

Inter-regional disparities, which are not great in Slovenia, decreased further during the crisis as a result of low activity in general. According to our calculations, the relative variance in GDP per capita, which is one of the indicators of regional disparities, has been decreasing since 2010, but not so much as a result of the regional development policy: the decline is attributable instead to a larger fall in economic activity in those regions that generate the largest share of Slovenia’s GDP and also have the highest GDP per capita. The relative variance in GDP per capita in Slovenia is one of the lowest in the EU. The ratio between the two regions with the highest and lowest values of per capita GDP is also relatively low compared with other EU Member States, but this is understandable given Slovenia’s small size. In the EU the differences may be as much as tenfold (e.g. in the United Kingdom); in Slovenia the ratio is 2.6 (though it is gradually rising).

The registered unemployment rate is falling across all regions but is still higher than before the crisis. Since 2011 the lowest rate has been recorded in the Gorenjska region: in 2016 it was a third below the national average and more than two times lower than in Pomurska, the region with the highest rate. Above-average registered unemployment rates are recorded in the regions of Vzhodna Slovenia, besides Primorsko-notranjska and Koroška. Since 2008 the registered unemployment rate has increased overall, the most in Zasavska, the region that has the lowest GDP per capita in Slovenia. In the last two years, however, the situation has been improving across all regions including Pomurska, where unemployment continued to rise even in 2015. This is especially important for this region, as its unemployment rate has been the highest for years, surpassing the national average by more than 50%.

Inter-regional disparities in the registered unemployment rate as measured by absolute dispersion have been stable in recent years. In the early years of the crisis they had been rising, reaching their peak in 2010. In the following two years, on the other hand, they declined, this as a result of a faster increase in unemployment in those regions of Zahodna Slovenija that have below-average rates. Since 2012 inter-regional disparities have remained relatively stable, with small year-on-year fluctuations, and are smaller than in 2008.

Unemployment of young people, the group of unemployed that was disproportionately affected by the labour market contraction during the crisis, has declined in all regions for the second consecutive year. The registered unemployment rate for young people (aged 15–29) shows similar regional variation to that of the total unemployment rate but is, on average, some 50% higher (the national average is 16.8%, with Gorenjska having 10.3% and Pomurska 25.5%). After 2014, it started to fall in all regions, particularly Zasavska, in which it is nevertheless still more than a quarter higher than the national average.

Registered unemployment rates by region, 2016