Slovenian Economic Mirror: Moderate growth in economic activity continues

GDP growth in Slovenia continues at a moderate pace; the deterioration of export expectations is reflected in lower export growth in some goods segments. The growth rates of goods exports and imports remain relatively high, which is, according to our estimate, to a great extent related to stronger trade and distribution activity in medicinal and pharmaceutical products. The growth of exports of other main manufactured goods is significantly lower, given the moderation of activity in Slovenia’s main trading partners and uncertainty in the international environment. Employment growth is slowing, but remains high amid increased hiring of foreigners. Favourable labour market conditions continue to boost growth in private consumption. Further growth is also recorded in activities related to domestic demand. These are the key findings of the Slovenian Economic Mirror published by the Institute of Macroeconomic Analysis and Development today.

Uncertainties in the international environment continue; the forecasts for economic growth in Slovenia's main trading partners are declining. Confidence indicator values are falling, indicating increased uncertainties associated with the tariff measures in the world’s largest economies and the UK’s withdrawal from the EU. This has already translated into weaker world trade growth this year. In the last few months, it has also been reflected in a lowering of manufacturing activity in the euro area, particularly Germany. More favourable developments have been recorded in activities related to private consumption and, partly, investments. The ECB and OECD expect 1.1% economic growth in the euro area for this year and a continuation of similar, yet lower growth than in the spring forecasts for next year.

In Slovenia moderate economic activity continues; the deterioration of export expectations has been reflected in lower export growth in some goods segments. The growth rates of goods exports and imports are otherwise relatively high, but mainly owing to stronger trade and distribution activity in medicinal and pharmaceutical products, according to our estimate. The growth of exports of other main manufactured goods is significantly lower, which can be attributed to cooling activity in Slovenia’s main trading partners. Business expectations about exports are also deteriorating further. Manufacturing production remains close to the levels achieved after the surge at the beginning of the year; production in high-technology industries (pharmaceutical and ICT equipment manufacturing) is strengthening further. Further growth is recorded in activities that are largely related to domestic demand. Strong activity in construction is attributable to increased investment activity of the public and private sectors. With rising household consumption, turnover also continued to grow in trade and most service activities.

In Slovenia moderate movements of economic activity continue; the strong external trade activity is related to increased activity in trade and distribution of medicinal and pharmaceutical products

Private consumption is still favourably affected by the labour market situation. Employment growth, though slowing, remains high owing to increased hiring of foreigners. Business expectations about employment are worsening. Amid low unemployment and softening economic activity, the falling of the number of registered unemployed persons slowed in recent months. Wage growth continues to strengthen, driven mainly by wage rises in the public sector. Wages in the private sector are increasing particularly in activities with skill shortages and large shares of minimum wage recipients. This, together with stronger growth in social transfers and a further rise in household loans, continues to boost growth in private consumption. Higher household spending is reflected in further growth in prices of services, while consumer price growth is moderating year on year under the impact of external factors in energy and food prices. The supply of residential properties remains limited. Sales of existing flats are again rising. Their prices continue to increase, with signs of moderation in Ljubljana.

The growth of deposits in the banking system remains stable and represents the main factor of the moderate strengthening of banks’ lending activity. The growth of non-banking sector deposits is approximately twice that of loans. Further growth is still recorded particularly for household loans, which account for more than four fifths of the total year-on-year increase in loans. The volume of corporate loans also strengthened in August, according to our estimate as a consequence of lower deleveraging. The quality of banks’ assets is improving amid a further decline in the volume of non-performing loans, particularly corporate loans. 

The ECB’s measures are contributing to a decline in government bond yields in the majority of the euro area countries, including Slovenia. In the summer months the ECB adopted an additional package of monetary policy measures, announcing – among other things – a new series of targeted longer-term refinancing operations (TLTRO III) with lower interest rates, and asset purchases in the amount of EUR 20 billion per month. The expansionary monetary policy and the announcement that interest rates will remain at their present or lower levels contributed to a decline in government bond yields in most countries in the euro area. The value of the 3-month EURIOBOR, which has already been negative for more than four years, was also at an all time low. 

Amid significantly faster growth in expenditure than revenue, the general government surplus was lower year on year in the first eight months. The lower revenue growth was mainly due to the year-on-year lower receipts from the EU budget and a loss of revenue from the personal income tax due to the easing of the tax burden on holiday allowance. This year’s strengthening of expenditure was mainly related to the adopted agreements on wage rises, further employment growth (particularly in health and education) and measures in the area of transfers. Given the low absorption of cohesion policy funds, the pace of EU funds absorption will intensify in the second half of the programming period 2014–2020 (as was the case in the previous financial framework).