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The available indicators for the euro area point to a further slowdown in economic activity. According to Eurostat’s flash estimate, euro area GDP contracted in the third quarter (after subdued quarterly growth in the second quarter). Germany, Slovenia’s most important trading partner, also recorded a year-on-year decline in GDP, as did Austria. Italian GDP stagnated, while it rose slightly in France. The composite Purchasing Managers’ Index (PMI) for the euro area was at its lowest level in three years in October and has been indicating a contraction in activity for several months. Indicators for activity in manufacturing and services fell further below the 50 mark (the threshold between economic expansion and contraction). Amid weak external demand and tighter financing conditions weighing on both investment and consumption, activity is expected to remain subdued in the coming quarters.

In Slovenia, real GDP fell in the third quarter compared to the second (by 0.2%) but was higher year-on-year (by 1.1%, not seasonally adjusted), partly due to last year’s lower base.  The cooling of the economic growth is reflected on the labour market. The growth in the number of persons in employment decelerated in most activities, with labour-intensive activities standing out, including construction and manufacturing. Growth was also lower in accommodation and food service activities, transportation and administrative and support service activities, which include employment activities. The more subdued demand for labour is also reflected in the number of reported job vacancies, which fell by 10.9% year-on-year in the third quarter of this year, and according to the short-term employment indicator, demand is likely to weaken further in the coming months. Despite the slowdown in hiring momentum, labour shortages remain a pressing issue in certain sectors, albeit less so than a year ago. Around half of companies in the construction sector, a third in trade and a quarter in manufacturing state that their business activities are hampered by labour shortages. This has also led to an increase in the employment of foreigners, whose numbers have accounted for more than 90% of the year-on-year increase in the number of persons in employment for several months now. The share of foreign nationals in the total number of persons in employment was 14.6% in August, one percentage point higher than in August last year. Activities with the largest share of foreign workers are construction, transportation and storage, and administrative and support service activities. The number of registered unemployed continued to fall, albeit at a more modest pace. At the end of October, 47,232 people were unemployed. Amid severe labour shortages, the number of long-term unemployed fell by 20% year-on-year at the end of October.

The average gross wage growth, which remains high year-on-year in nominal terms (10.7% in August) but is no longer rising, has risen in real terms since the beginning of the year (by 4.2%) against the backdrop of a gradual easing of price pressure. Real average gross wage growth has been gradually strengthening for some time now amid subdued price pressure. In the private sector, it stood at 2.9% in August, with the highest increases recorded in accommodation and food service activities, administrative and support service activities, trade, and construction, i.e. in sectors facing a major labour shortage and where the general increase in the minimum wage at the beginning of the year (by 12%) had the greatest impact, due to the relatively high proportion of low-wage earners. In the public sector, the average gross wage rose by 6.7% in real terms, which was primarily due to the agreement with the public sector trade unions reached in October last year.

The year-on-year increase in consumer prices slowed slightly in October (to 6.9%), but HICP inflation (6.6%) was still well above the euro area average (by 3.7 p.p), while the deviation of core inflation from the euro area average was less pronounced. The moderation in year-on-year growth in consumer prices in October was mainly due to the continued slowdown of price increases of food and non-alcoholic beverages (from 19.3% at the beginning of the year to 7.3% in October), which remain the largest contributors to inflation. The lower price increase in the clothing and footwear group also contributed significantly to the slowdown in inflation. However, the price increase for services remained high in all groups and was most pronounced in the communication group. Prices for energy (8.2%) and non-energy industrial goods were also higher. HICP inflation in Slovenia is above the euro area average and the difference has widened since September. This was mainly due to the expiry of some of the measures taken to mitigate the consequences of rising prices in Slovenia, as the measures taken by individual countries to curb high energy prices varied in both scope and duration. The difference in October was particularly marked in energy prices, partly due to higher excise duties on petroleum products. There are also significant gaps in the growth of prices for services (around 8% in Slovenia in October, compared to 4.6% in the euro area). The growth in services prices in Slovenia has been at a high level since the post-covid-19 recovery. In addition to higher demand, certain service activities are facing labour shortages and cost pressures related to rising wages and costs of goods, which is contributing to an upward pressure on retail prices. The growth in prices for food, beverages and tobacco is slowing both in Slovenia (7.7%) and in the euro area (7.5%). There are also no major differences in price growth for non-energy industrial goods (Slovenia 3.7%; euro area 3.5%). A comparison of the development of consumer price indices in Slovenia and the euro area over the last 10 years shows that the greatest differences have occurred in recent years. In this period, governments have taken measures that varied in both scope and duration to mitigate the consequences of the epidemic and rising energy and food prices, with the economic policies of the larger Member States having a greater impact on euro area inflation. When taking into account a longer time horizon, the differences between inflation in Slovenia and the euro area have never been long-lasting and have mostly lasted as long as the effects of various measures in recent years, with a time lag of 12 months. In the case of core inflation, which excludes the impact of energy and unprocessed food prices, the differences between Slovenia and the euro area are much more constant. Here, the difference has been around 2 p.p. since the beginning of last year.

In the third quarter of this year, the deficit of the consolidated balance of public finances was higher year-on-year. It totalled EUR 386 million, compared to EUR 177 million in the same period last year. It was also higher year-on-year in the nine-month period (EUR 825 million this year against EUR 380 million in the same period last year). Revenues rose by 7% year-on-year in the third quarter and thus more strongly than in the second (3.2%). In addition to the increase in social security contributions, the growth in tax revenues resumed in the third quarter; the growth in corporate income tax revenues resumed and the growth in personal income tax revenues also increased. The expiry of the temporary measures of reduced VAT on energy products and the CO₂ tax also boosted the growth of these revenues. Expenditure was 10.4% higher year-on-year in the third quarter, which is a stronger increase than in the second quarter (7.6%). This was mainly due to higher subsidies to mitigate the consequences of rising energy prices and transfers to non-profit organisations, which can be attributed to payments related to post-flood reconstruction. However, as in previous quarters, much of the increase in expenditure in the third quarter was due to the increase in wages and other remunerations as a result of the agreement on public sector wage increase. Growth in capital expenditure remained at a similarly high level (11.7%) to the previous quarter.