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According to the available indicators, the growth of economic activity in the euro area continued in the second quarter, albeit at a slower pace since May. With the lifting of pandemic restrictions, growth was boosted by consumption in the services sector, while manufacturing activity was affected by increased supply chain disruptions due to the partial shutdown of the economy in China and the war in Ukraine. According to the composite Purchasing Managers’ Index (PMI), growth in global economic activity also slowed in the second quarter. Several PMI indicators point to an increased risk of a further slowdown in the third quarter as central banks across the globe are adjusting their monetary policies in response to strong inflationary pressures, contributing to tighter financing conditions.

Domestic consumption growth in Slovenia remained high in the spring months but price pressures are increasing; activity in the export part of the economy also increased, but future expectations are accompanied by great uncertainty. The easing of containment measures amid record high employment and, according to our estimates, further unwinding of household savings had a favourable impact on household consumption growth. Consumption was boosted by the continued redemption of vouchers, and year-on-year growth was due to the effect of last year’s lockdown in the first third of April. In April, turnover continued to grow in trade and market services. After a sharp increase at the beginning of the year, construction activity declined slightly in April but remained significantly higher than last year. Compared to previous years, the highest growth was seen in the construction of buildings. Cost pressures in construction, as in other activities, continue and are an important source of uncertainty about the future. Manufacturing production increased slightly in May, with high-technology industries recording the highest year-on-year growth this year. Lower growth than a year ago was recorded in particular in the manufacture of motor vehicles, mainly due to supply chain disruptions, lower demand and restructuring towards a greater supply of electric vehicles. Trade in goods with EU Member States increased slightly in May and was significantly higher year-on-year. Despite the high value of merchandise exports, Slovenia’s export market share in the EU market decreased year-on-year in the first quarter, with the largest decrease in France, due to the lower export volume of road vehicles. Uncertainty in the international environment, arising from the war in Ukraine, rising inflation and supply chain disruptions, has led to a decline in export orders in recent months, while export expectations have fluctuated more markedly from month to month. The surplus of the current account of the balance of payments has declined due to price trends and strengthening of domestic consumption. The value of the economic sentiment indicator fell in June, but remained above the long-term average; confidence was lower in all components of the indicator. The value of the consumer confidence indicator fell below the long-term average (due to the rise in prices and the resulting deterioration in household purchasing power), while the manufacturing confidence indicator was on par with the long-term average (bottlenecks in the supply of raw materials, rising commodity and energy prices, and the war in Ukraine).

In the labour market, high employment growth and the decline in unemployment continue, and supply-side constraints are dampened by the employment of foreigners; the average gross wage in April was lower year-on-year in real terms. The growth in the number of persons in employment was slightly lower than at the beginning of the year. More than half of the increase was accounted for by the employment of foreign nationals. At the end of June, the number of unemployed was the lowest since 1990. The number of long-term unemployed is also declining. Nominal growth in average wages in the private sector strengthened year-on-year; according to our estimations, the high wage growth was affected by labour shortages, especially in accommodation and food service activities, trade, and transportation and storage. In the public sector, the average wage remained lower year-on-year in nominal terms due to the cessation of most of the last year’s epidemic-related bonuses. 

Inflation continued to rise in June. Prices rose by more than a tenth compared to the previous year, and prices of industrial products and real estate continue to rise. The inflation was mainly driven by more than one-third higher prices of energy. Growth of food prices was also high. Year-on-year growth of Slovenian industrial producer prices continued to strengthen in May. This was impacted by geopolitical tensions, the tight situation in the market for energy and non-energy commodities, and supply chain bottlenecks. Prices of dwellings, especially of existing dwellings, have also risen significantly in the first quarter as both the supply and the number of transactions involving newly built dwellings have been severely limited.

The general government deficit was significantly lower in the first five months than in the same period last year. The decrease was due to growth in revenue and lower expenditure. Revenue growth was the result of the growth in economic activity and high employment and came mainly from corporate income tax and VAT revenues; revenue from the EU budget also saw a sharp increase. Expenditure was slightly lower than a year ago due to significantly lower payments for measures to mitigate the consequences of the epidemic, but investment and expenditure on goods and services increased.