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Slovenian Economic Mirror 1/2022: favourable economic trends continue and unemployment is declining

In Slovenia, most economic indicators suggest that the relatively favourable trends in the export-oriented part of the economy and in domestic consumption continued in the last quarter of last year; the worsening of the epidemic situation has had a particular impact on confidence indicators in service activities. Due to the low base in 2020, activity in most sectors was significantly higher year-on-year at the beginning of the last quarter and was above pre-epidemic levels. Tourism-related activities and construction in particular still lag well behind these levels. Uncertainty related to the deterioration in the epidemiological situation affected overall confidence in the economy, especially at the beginning of the last quarter, and in the services sector until the end of the year. Labour market conditions remain favourable; employment is at historically high levels and unemployment continues to decline. Inflation increased further in December, mainly due to year-on-year higher energy prices. As a result of high commodity and energy prices on world markets and supply chain problems, prices for non-energy durable and non-durable industrial goods and food also increased. These are the main findings of the new Slovenian Economic Mirror published today by the Institute of Macroeconomic Analysis and Development.

GDP growth forecasts for the euro area remain relatively high but are accompanied by great uncertainty related to high commodity prices, supply chain disruptions and a renewed deterioration in the epidemiological situation. Given the deterioration in the epidemiological situation, activity growth slowed, particularly in the services sector, and ongoing supply chain disruptions are increasingly hampering the manufacturing sector, especially the automotive industry. High commodity and energy prices are having a significant impact on rising inflation in the euro area, which stood at 5% year-on-year in December. 

In Slovenia, most economic indicators suggest that the relatively favourable trends in the export-oriented part of the economy and in domestic consumption continued in the last quarter of last year. The worsening of the epidemic situation has had a particular impact on confidence indicators in service activities. Manufacturing production increased significantly in November after stagnating in October. After several months of notable monthly fluctuations, trade in goods also increased in October and November. The relatively favourable trend in trade and tourism-related activities continued in October, and, according to data on fiscal certification of invoices, turnover in December was also slightly higher than in the same periods of 2019 and 2020. Activity in construction, which has fluctuated widely across segments in recent months, fell sharply in October. After several months of growth, turnover in market services declined on the previous month, especially in professional and technical activities, and growth in trade in services also came to a halt. Due to the low base in 2020, activity in most sectors was significantly higher year-on-year at the beginning of the last quarter and was above pre-epidemic levels. Tourism-related activities and construction in particular still lag well behind these levels. Uncertainty related to the deterioration in the epidemiological situation affected overall confidence in the economy, especially at the beginning of the last quarter, and in the services sector until the end of the year.

Labour market conditions were favourable also in the last quarter of last year. Employment, which reached its highest level since measurements began, continued to rise in October. At the end of last year, 65,969 people were unemployed. This is significantly lower than in the same periods of 2020 and 2019 (24.4% and 12.4% lower respectively) and the lowest level since November 2008. Given the high demand for labour, which is also reflected in the high vacancy rate, the number of long-term unemployed also fell last year, but is still slightly higher than before the epidemic. Wage growth had slowed year-on-year from the middle of last year to October, mainly as a result of the cessation of certain epidemic-related bonus payments in the public sector. Growth in average gross wages in the private sector remained high in October. This is mainly due to the increase in the minimum wage at the beginning of the year, but also to the return to employment of workers who had participated in job retention measures and labour shortages in some sectors. 

Inflation increased further to 4.9% in December. Year-on-year inflation continues to be driven mainly by prices of energy, and partly also by prices of durable and semi-durable non-energy industrial goods, and food. The higher growth of prices is related to high commodity and energy prices on world markets and supply chain problems, which increasingly spill over into domestic consumer prices through import prices and Slovenian industrial producer prices.

The general government deficit was lower in the first eleven months of 2021 than in the same period of 2020; according to preliminary data, it increased in December 2021. The deficit of the consolidated general government budgetary accounts amounted to EUR 2.2 billion in the first eleven months of last year and was EUR 0.3 billion lower than in the same period of 2020, which reflects the high growth in revenues and the lower growth in expenditure. Revenue growth was the result of a rebound in economic activity, especially domestic spending, and more favourable labour market conditions. As a number of measures to mitigate the impact of the COVID-19 epidemic expired, expenditure growth slowed in the second half of last year. According to the preliminary data, the deficit of the state budget, which accounts for the largest part of the consolidated balance sheet, rose sharply in December 2021, amounting to EUR 3.1 billion in 2021, but was lower than predicted when the budget documents were prepared for 2022 and 2023 (EUR 3.9 billion), as expected.
 

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