Most of the available economic indicators in Slovenia deteriorated in July and August. After months of decline, exports and imports of goods increased slightly in August, while manufacturing output continued to contract. The year-on-year decline in activity in export-oriented sectors deepened, with energy-intensive industries being the hardest hit. Export expectations in manufacturing also remained very low, falling to their lowest level since mid-2020 in September. Data on electricity consumption for August and September also point to a significant year-on-year decline in electricity consumption, due particularly to lower industrial consumption. Current growth in services trade also declined, but remains strong year-on-year due to a significant recovery in tourism-related services trade. Real turnover in market services declined in July, most notably in transport. Turnover in most trade sectors also decreased. Preliminary data suggest that similar trends continued in August. Turnover remained higher only in the sale of motor vehicles. In July and August, households spent less on food, non-food products, overnight stays in Slovenia and new cars than a year earlier. According to data on the fiscal verification of invoices, total turnover, which was weaker in August, increased slightly in September. According to data on the value of work put in place, construction activity decreased in July, although it was still significantly higher than last year. Economic sentiment, which had deteriorated since the beginning of the year, improved slightly in September but remained relatively low. Confidence in most sectors remained lower than a year ago and in the pre-epidemic period.

Electricity consumption was 17% lower year-on-year in September. According to our estimate, this was mainly due to lower industrial consumption. The decrease in electricity consumption could also be partly due to the floods in August, which resulted in some residential and manufacturing/service units not yet being back in use in September. Among Slovenia’s main trading partners, lower consumption compared to September 2022 was recorded by Austria (-10%), Croatia (-3%), Italy (-1%) and Germany (-1%), while consumption was higher in France (3%).

In August, electricity consumption in the distribution network was lower year-on-year in all consumption groups. Industrial consumption fell by 12% year-on-year, slightly more than in the previous months. The decline deepened also due to the floods and their impact on the production processes of some companies. The year-on-year decline in consumption was also somewhat more pronounced among small business consumers (2.8%). For households, the year-on-year decline (0.5%) was lower than in previous months, which could also be related to higher electricity consumption due to the drying of properties after the floods.

The nominal value of fiscally verified invoices was 6% higher year-on-year in September. Following weaker growth in August, total turnover growth rose to 6% year-on-year in September, the strongest since May when it was 7%. Turnover in trade rose 4% year-on-year, following a 1% increase in August. Turnover in retail trade, which accounted for almost half of the total value of fiscally verified invoices, increased by 3% year-on-year, turnover in the sale of motor vehicles by 15%, while turnover in wholesale trade fell by 1% year-on-year. Turnover growth strengthened significantly in accommodation and food service activities (from 5% to 15%) and in certain creative, arts, entertainment and sports services and betting and gambling (total growth in other service activities was 21%, compared to 7% in August). 

The year-on-year decline in trade in goods deepened in August. After months of contraction, real exports and imports of goods rose slightly in August, mainly due to higher trade with EU Member States (seasonally adjusted). However, their year-on-year decline intensified; trade in goods thus fell to pre-2020 levels. In the first eight months of this year, exports fell by 6.1% year-on-year (by 5.7% to EU Member States) and imports by 8% year-on-year (by 6.3% from EU Member States). Weak economic activity in Slovenia’s main trading partners continued to weigh on sentiment and expectations in export-oriented activities, as expectations for exports in manufacturing fell further in September, reaching the lowest level since May 2020 (seasonally adjusted).

After almost two years of contraction, Slovenia’s export market share in the EU market increased year-on-year in the first half of 2023 (by 3.1% overall). Slovenia’s export market share in the EU market decreased by 2% and 5.3% in 2021 and 2022 respectively. The decline was particularly pronounced in the second half of last year, strongly influenced by energy-intensive products. Preliminary estimates suggest that the decline in market share last year was to some extent temporary and related to the rationalisation of production at a time of great uncertainty about energy supply and prices. Namely, Slovenia’s market share increased again year-on-year in the first and second quarters of this year (by 3.6% and 2.6% respectively), though against the backdrop of a significant decline in the value of import demand from EU countries. However, it is still below the level of two years ago, which we attribute to the deterioration of price competitiveness in the interim period and to the structure of exports. 

Trade in services remained at a high level at the start of the third quarter, with year-on-year growth slowing. Compared to June, exports of services declined in July and imports of services increased slightly (seasonally adjusted). The development of trade in services in recent months has been mainly influenced by the higher monthly fluctuations in exports of administrative and support service activities. Trade in transport services further declined, while exports of tourism-related services further increased (seasonally adjusted). Year-on-year growth of trade in services is gradually slowing, although it remained high on average in the first seven months of this year, due to a significant recovery in trade in tourism-related services. 

Manufacturing output further contracted in August. After a decline in the second quarter, output in less and medium-high technology industries continued to fall on average in July and August. After growth in the first half of the year, output in high-technology industries also declined in the summer months, with output in the first eight months higher than a year earlier, while it fell in all other industry groups. On average, total manufacturing output in the first eight months was 3.5% lower year-on-year. The year-on-year decline was more pronounced in the more energy-intensive industries, with the largest drop (by almost one-quarter) in the chemical industry.
Companies do not expect production activity to pick up until the end of the year, which we attribute to insufficient (mainly foreign) demand and an uncertain economic situation.

According to data on the value of construction work put in place, construction activity fell in July although it remained significantly higher than last year. After high growth in the value of construction work at the beginning of the year, activity fluctuated around the level reached in subsequent months. In the first seven months of this year, it was 23% higher year-on-year. In this comparison, activity was higher in all three segments covered by the statistics: most markedly in specialised construction (up 38%), followed by civil engineering and building construction (up 20% and 17% respectively).
Some other data, however, point to much lower growth in construction activity. According to VAT data, the activity of construction companies in the first seven months was 11% higher than last year. Based on data on the value of construction put in place, the difference in the growth of this activity was 12 p.p.

In most trade sectors, real turnover continued to fall in July and, according to preliminary data, also in August; only turnover in the sale of motor vehicles remained higher year-on-year. Turnover in the sale of motor vehicles, which has been rising in current terms since the second half of last year, rose by 17% year-on-year in July. Turnover in wholesale trade, which continued to decline in July, fell by 6% year-on-year, and turnover in retail trade (excluding automotive fuel) fell by 4%. Turnover in retail sale of food, beverages and tobacco, which had risen slightly in July, fell by 3% year-on-year and turnover in the sale of non-food products fell by 5%. Among non-food products, the largest year-on-year decline, similar to previous months, was seen in the sale of durable and certain semi-durable goods. According to preliminary SURS data, turnover in August was still lower year-on-year in retail trade and higher in the sale of motor vehicles.

After decreasing in the second quarter, real turnover in market services declined further in July. Total turnover thus declined by 0.2% in current terms, having already declined significantly in the second quarter (by 2.3%). Turnover in transportation and storage continued to decline, with the negative trend continuing since May last year. This time the decline came mainly in postal activities and warehousing and storage. Turnover also declined in administrative and support service activities, amid weak growth in employment and a further decline in travel agencies, which has been observed since March. Due to the high growth in overnight stays by foreign tourists, accommodation and food service activities experienced a strong upswing in turnover. Growth also accelerated in professional and technical activities, although turnover in architectural and engineering services dropped significantly. Turnover also continued to grow in information and communication activities, mainly due to the increase of turnover in computer services on the domestic and foreign markets. Year-on-year, total turnover in market services fell by 0.1% in real terms in July, due to declines in transportation and storage and real estate activities. After a long time, turnover in transportation and storage again fell below pre-epidemic (July 2019) levels (by 8%), and it was still below pre-epidemic levels in administrative and support service activities (by 6%), among which the sharpest decline was in employment activities (by 19%).

Household expenditure on food, non-food products, new vehicles and overnight stays in Slovenia was lower in real terms in the summer than in the same period last year. Purchases of non-food products (down 6% in real terms), food, beverages and tobacco (down 2% in real terms) and overnight stays by domestic tourists in Slovenia (down 12%) were still lower year-on-year on average in July and August. After growth in previous quarters, sales of new passenger cars also declined year-on-year (by 3%). Expenditure on tourist services abroad remained higher year-on-year in July (up 6% in nominal terms), while the number of overnight stays by Slovenians in Croatia fell by 2% year-on-year.
Against the backdrop of continued relatively high growth in gross disposable income, mainly due to favourable labour market conditions, the household savings rate is expected to remain high in the third quarter. According to SURS data, it was 23.3% in the first half of the year, 2.6 p.p. higher than in the first half of last year and 6.1 p.p. higher than in the first half of the pre-epidemic year 2019.

In September, the value of the economic sentiment indicator rose slightly, although it remained relatively low. Compared to the previous month, confidence was higher in services, construction and among consumers, while it was lower in retail trade. Confidence in manufacturing remained at the previous month’s level and was noticeably lower than in September last year. This is mainly related to the uncertain economic situation and weak domestic and foreign demand. Confidence in most sectors remained lower than a year ago and in the pre-epidemic period. Consumer confidence is an exception, but the indicator is still well below its long-term average.

In the second quarter, subdued growth of dwelling prices continued amid a further decline in the volume of sales. Prices were 1.9% higher than in the first quarter and 7.4% higher than in the second quarter of 2022. Year-on-year growth, which weakened considerably compared to previous years, was driven by higher prices for existing dwellings (by 7.9%). Prices of newly built dwellings were also slightly higher year-on-year (by 0.7%), but these dwellings accounted for only slightly more than 1% of all transactions due to lack of supply. A total of 2,421 dwellings were sold. This is a drop of almost one third compared to the second quarter of last year and the lowest level since the second quarter of 2020, when the number of transactions was severely affected by business restrictions due to the outbreak of the epidemic.

The financial situation of households continued to deteriorate in the third quarter, most markedly among households in the first income quartile. With inflation persisting and the measures to address the impact of energy price increases on the poorest households coming to an end, the proportion of households in financial distress increased by an average of 1.2 p.p. in the third quarter of this year compared to the previous quarter (by 0.8 p.p. year-on-year). In this respect, 18.9% of households from the first income quartile struggled the most to make ends meet, which is the highest proportion in seven years. The share of households having to draw on savings to make ends meet continued to increase. The proportion of households running into debt continued to fall slightly as interest rates rose.

Year-on-year growth in the number of persons in employment was lower in July than in the previous months (1.2%). This was mainly due to a slowdown in year-on-year growth in construction and also manufacturing. The strongest growth was in information and communication. For some time now, the employment of foreigners has contributed almost exclusively to the overall growth in the number of persons in employment – 96% year-on-year in July, slightly more than in previous months. Foreigners accounted for 14.6% of total employment in July, up 1 p.p. year-on-year. The sectors with the highest share of foreigners were construction (48%), transportation and storage (33%), and administrative and support service activities (27%).

According to the seasonally adjusted data, the monthly decline in the number of registered unemployed was slightly higher in September (-0.8%) than in the previous three months. According to original data, 45,999 people were unemployed at the end of September, 2.9% less than at the end of August. Unemployment was down 11.6% year-on-year. Amid severe labour shortages, the number of long-term unemployed (more than 1 year) fell by 21% year-on-year at the end of September.

The average gross wage increased by 3.7% year-on-year in real terms in July. In the private sector, the average gross wage increased by 2.8% year-on-year in real terms. Growth was strongest in administrative and support service activities and in accommodation and food service activities, which are facing a major labour shortage. The average gross wage in the public sector increased by 5.2% year-on-year in real terms, mainly due to last year’s agreement on wage increases. Compared to July last year, the average gross wage increased by 10% in nominal terms – by 11.6% in the public sector and by 9% in the private sector. In the first seven months, the average year-on-year gross wage growth was 1.4% (1.2% in the private sector and 1.9% in the public sector).

In August, the number of financial social assistance (FSA) beneficiaries continued to fall slightly and the number of unemployment benefit (UB) recipients also remained low. The number of FSA beneficiaries has fallen since February this year amid high employment levels and a drop in the number of long-term unemployed. There were 74,113 FSA beneficiaries in August, 5.8% fewer than a year ago. The unemployed recipients of financial social assistance (20,456 persons), mainly include the long-term unemployed and persons with a lower level of education. Despite the high demand on the labour market, some people are unable to find a suitable job because they belong to the group of people with low employment prospects. The number of UB recipients has increased slightly in recent months, mainly due to the expiry of fixed-term employment contracts, while in August it was still lower year-on-year (by 4.5%).

As expected, year-on-year growth in consumer prices accelerated in September (from 6.2% to 7.5%). This was mainly due to the lifting of measures to mitigate the consequences of high energy prices. On 1 September this year, the Decree on the method of determining and calculating the contribution for ensuring support for the production of electricity from high-efficiency cogeneration and renewable energy sources, which reduced the monthly contribution for the provision of the aforementioned support by half, expired. The electricity price thus increased by one-tenth month-on-month. The higher year-on-year growth was also due to the lower base related to the reduction in VAT rates on certain energy products from September last year to May this year. Growth in prices of food and non-alcoholic beverages continued to ease gradually and at 9.2% was the lowest since April 2022. The year-on-year growth in durable goods prices slowed further (1%) and the growth in semi-durable goods prices also slowed (5.5%), with a slightly less pronounced seasonal increase in the clothing and footwear group. Since May this year, price growth in services has remained roughly unchanged (between 8 and 8.4%). The highest year-on-year price growth was recorded in the health group (10.7%), and prices in the group restaurants and hotels also rose sharply (9.2%).

Slovenian industrial producer prices fell at the monthly level for the fifth month in a row in August. They were 0.5% lower than in July, with decreases in both the domestic market (0.7%) and the foreign markets (0.2%). This means that the year-on-year growth rate has slowed to 2.1%, compared to the growth of almost 20% at the end of last year. The main reason for the slowdown was price developments in the intermediate goods group, where prices fell year-on-year in August for the first time since January 2021, by 3.9% (19.4% growth at the end of the year). Price growth is also weakening in other industrial groups. The slowdown was most pronounced in the energy group, where prices had still risen by almost 80% year-on-year at the end of last year, while growth in August was 7.4%. However, we estimate that their contribution to the slowdown in overall growth is lower than that of intermediate goods, as their share in the price structure of industrial products is relatively small. A similar price increase (6.8%) was recorded for consumer goods, while the year-on-year price increase for capital goods remained largely unchanged (4.4%).

The volume of loans to domestic non-banking sectors contracted by 1.4% year-on-year in August as borrowing conditions continued to tighten. This was primarily due to corporate and especially NFI deleveraging, while the volume of loans to the government also declined. Growth in loans to households, which reached 3.4% year-on-year, is also slowing, reflecting a rapid deceleration in growth in housing loans, which at 1.6% was the lowest since 2016. In the first eight months of this year, new borrowing in the form of housing loans amounted to around EUR 780 million, which is more than 50% less than in the same period last year. The volume of consumer loans has increased markedly in recent months, up 7.1% year-on-year in August, while the volume of new loans has risen by almost a quarter this year. We believe this is due to both changes in minimum credit standards for new loans to households and a change in banks’ lending policies that are now focused on consumer loans with higher interest rates compared to housing loans. Year-on-year deposit growth in the domestic non-banking sector remained roughly unchanged (4.7%). The quality of banks’ assets remains solid and the share of non-performing loans is still at 1%.

Yields to maturity of euro area government bonds rose slightly in the third quarter of this year amid the ECB’s continued restrictive monetary policy. In this period, the yield to maturity of the Slovenian government bond increased by 17 basis points, to 3.45%. The spread to the German bond fell again slightly quarter-on-quarter, to 85 basis points.

The current account surplus increased further in July. In the last 12 months it amounted to EUR 2.1 billion, compared to a deficit of EUR 151.9 million in the previous 12-month period. The main contributor to this change was the goods trade balance (the annual trade deficit has been declining since February this year), as imports of goods declined amid weak export growth. The surplus in trade in services also increased, especially in trade in travel and transportation services, but also in trade in other services – especially construction services, but also in higher value-added services (telecommunications, computer and information services, research and development services, and financial services). The primary income deficit was higher year-on-year mainly because the income of foreign workers in Slovenia increased more than that of Slovenian workers abroad. Net outflows of income from equity capital (dividends and profits) were also higher.

In the first eight months of this year, the deficit of the consolidated balance of public finances was higher year-on-year. It totalled EUR 800 million, compared to EUR 388 million in the same period last year. Revenues increased by 3.5% (by 12% last year). The main contributors to this growth were higher increases in social contributions and personal income taxes, alongside growth in employment and wages, as well as in excise revenue, due to increases in excise duties on energy and tobacco products. Revenue from corporate income tax declined markedly due to lower balancing payments of tax this year. Overall tax revenue growth remained subdued, also due to a slowdown in VAT revenue growth as a result of the reduced VAT on energy products (until the end of May), and a slowdown in private consumption growth. Receipts from the EU budget and some capital and transfer revenues declined significantly. Expenditure increased by 6% year-on-year, while it decreased by 0.2% in the same period last year. The main reason for the increase this year was the rise in wages and other remunerations (12.2%) as a result of the agreement on the public sector wage increase. Investment expenditure was 11.3% higher. Interest payments were also higher. Various transfers (subsidies and transfers to individuals and households), which had fallen in the same period last year due to the lifting of COVID-19 measures, have also risen this year due to measures to mitigate the consequences of rising energy prices. Expenditure related to measures to mitigate the consequences of COVID-19 amounted to EUR 162 million in the first eight months of this year (compared to EUR 642 million in the same period last year) while expenditure on measures to mitigate price increases amounted to EUR 309.8 million (EUR 86 million in the same period last year). The latter includes mainly subsidies to the economy under Article 14 of the ZPGOPEK (EUR 181.9 million).

Slovenia’s net budgetary position against the EU budget was positive in the first eight months of this year (at EUR 99.9 million). In this period, Slovenia received EUR 534.3 million from the EU budget (36.7% of receipts envisaged in the revised state budget for 2023) and paid EUR 434.4 million into it (59.5% of planned payments). The bulk of receipts were resources from structural funds (36.7% of all reimbursements to the state budget, 52.2% of the planned reimbursements in 2023) and resources under the Common Agricultural and Fisheries Policy (34.5% of all reimbursements, 54.7% of the planned reimbursements). Reimbursements from the Cohesion Fund amounted to 15.9% of all reimbursements (32.2% of the planned reimbursements). In April, Slovenia received EUR 49.8 million on the basis of its first payment request for a grant from the Recovery and Resilience Facility (12.8% of the planned amount). More than half of payments to the EU budget came from gross national income. 
According to the MKRR, by the end of June funding decisions taken accounted for 115%  of the allocated funds under the 2014–2020 MFF (ECP – 116%, React-EU – 105%) and disbursements for 89% of the allocated funds (ECP – 93%, React-EU – 42%).