Economic Mirror: In Slovenia, moderate economic activity continued towards the end of last year; internationally, economic sentiment indicators indicate improvement

At the end of last year, moderate economic activity in Slovenia continued, while confidence started to improve. Confidence improved in almost all sectors, particularly manufacturing. Enterprises in this sector have higher expectations about production volume and orders, which is related to the improvement in the global economy. On the labour market, unemployment continues to decline at a moderate pace, while higher household disposable income as a consequence of growth in wages, social transfers and employment has a favourable impact on private consumption. These are the key findings of the Slovenian Economic Mirror released by the Institute of Macroeconomic Analysis and Development today.

Economic developments in Slovenia were moderate at the end of last year; activity strengthened only in construction. After several months of decline, activity in construction strengthened again in all segments, particularly in the construction of non-residential buildings. Activity in manufacturing has been stagnant since the first quarter of last year, partly due to the slowdown in exports related to weak demand from major trading partners, particularly Germany. In the last quarter of 2019, year-on-year economic growth in the euro area – where Slovenia exports more than half of all goods – was the lowest in six years, only 1.0%. At the end of the year, the growth of turnover in market services also came to a halt, particularly in transportation, professional, technical and administrative and support service activities.

Figure: In Slovenia, moderate economic activity continued at the end of last year, while confidence in the economy started to improve.

Private consumption was strengthening further in the last quarter of 2019. Stronger wage growth, alongside growth in employment and social transfers, was increasing disposable income and continued to boost growth in private consumption. Employment growth, although slowing, remained relatively strong. Owing to a significant shortage of workers with appropriate skills, it was mainly based on the hiring of foreigners. Last year wage growth strengthened largely owing to wage rises in the general government sector, but also due to higher growth in social transfers and the easing of the tax burden on holiday allowance. Amid higher disposable income, households mainly increased spending on some durable goods such as passenger cars and household appliances. Year-on-year growth in consumer prices strengthened in January (to 2.1%), driven mainly by higher food and energy prices. Food prices are increasing due to growth in prices of meat as a consequence of the outbreak of the African swine fever. Fruit prices are also on the rise, reflecting last year’s worse harvest.

Business expectations improved slightly at the beginning of this year, particularly in the export-oriented part of the economy. Confidence was up in all activities except retail trade. The increase in the overall indicator was mainly due to higher confidence in manufacturing owing to the improved expectations of enterprises regarding production volume and higher orders. Growth in the global economy and trade and, consequently, growth in the euro area, will strengthen this year according to the forecasts of international institutions, amid a considerable decline in some main risks. This is also indicated by the dynamics of economic sentiment indicators, which have improved in recent months.