Slovenian Economic Mirror
Slovenian Economic Mirror 8/2021
According to some indicators, economic growth of export-oriented sectors of the economy in Slovenia moderated in the third quarter. Compared to the second quarter, trade in goods actually declined slightly, while manufacturing output growth slowed, which is related to supply chain disruptions. At the same time household consumption strengthened in the summer months, especially in tourism. In October, the value of the economic sentiment indicator deteriorated, which we attribute to uncertainty about the further development of the COVID-19 epidemic in the international environment, mainly due to supply chain disruptions. Nevertheless, most confidence indicators remain higher than a year ago. The situation on the labour market was good in October, with the increase in the number of unemployed being mainly related to the usual autumn inflow of first-time job seekers into unemployment. Consumer price inflation increased significantly in October. About two-thirds of the year-on-year inflation was due to higher prices for petroleum products and heat energy.
Economic growth in the euro area remained high in the third quarter. According to Eurostat's first estimate, GDP rose by 2.2% compared to the second quarter (by 3.7% year-on-year) and was 0.5% below the fourth quarter of 2019, the last quarter before the crisis. Private consumption continued to be the main driver of growth. Among Slovenia’s main trading partners, Austria recorded the highest growth (3.3% quarter-on-quarter, 4.8% year-on-year), and France and Italy also recorded high growth. Economic growth in Germany, which was the most affected by supply chain disruptions among all Slovenia's main trading partners, was 1.8% quarter-on-quarter (2.5% year-on-year). Available indicators show that growth in economic activity in the euro area will slow down in the last quarter. PMI readings in October were the lowest in six months. The economic recovery is losing momentum, mainly because of worsening supply bottlenecks, high energy prices and inflationary pressures, while uncertainty is also increasing because of the renewed spread of the epidemic. In their autumn forecasts, the IMF and EC expect growth of 5% for the euro area economy this year, slowing to 4.3% next year.
Dollar prices of Brent crude oil rose further in October, and after several months of decline, non-energy commodity prices also rose. The average dollar price of Brent crude oil was up 12.2% in October (107.9% year-on-year) to USD 83.5/barrel. Prices of other energy sources, especially natural gas, are also rising sharply in global markets. It is estimated that they rose 25% month-on-month in October (307% year-on-year) amid lower stocks, higher demand and geostrategic impacts. Rising prices of natural gas, which is one source of electricity generation, also have a significant impact on rising electricity prices on the European market. According to the World Bank, non-energy commodity prices rose by 3% in October compared to the previous month and were up 30% year-on-year. Base metals prices (excluding minerals and precious metals) in particular remain high. They rose further in October and were up 51% year-on-year. The prices of energy and other commodities have a significant impact on the rise in inflation in the euro area, which was 4.1% in October.
Some indicators suggest that the growth of economic activity in Slovenia weakened in the third quarter, especially in the export-oriented sectors of the economy, while domestic consumption increased. Trade in goods declined in the third quarter, while manufacturing output growth slowed, which we believe is related to supply chain disruptions. However, both indicators were higher than for the same period in 2019. Construction activity fluctuates strongly from month to month and remained below the comparable 2020 level in August, mainly due to unfavourable trends in non-residential construction. Turnover in trade increased in August. In most sectors, turnover in the first eight months of the year combined was higher than in the same period of 2019. Turnover in market services also increased in August, and turnover in accommodation and food service activities has been rising strongly for several months, although it is still lower than in the same period in 2019. In current terms, household consumption strengthened in the summer months, mainly in tourism-related services. The first data for the beginning of the last quarter of this year show that the differences in the development of the export-oriented part of the economy and domestic consumption persist. Electricity consumption in October was roughly on par with the same periods in 2019 and 2020, while the year-on-year growth in freight traffic volumes on Slovenian motorways slowed somewhat. According to data on the fiscal verification of invoices, turnover in October was higher year-on-year, mainly as a result of last year's low turnover following the introduction of stricter containment measures in the autumn months. Uncertainty in the international environment, mainly due to supply chain disruptions, and in relation to the future development of the COVID-19 epidemic most likely contributed to the deterioration of the economic sentiment indicator in October as well. Nevertheless, most confidence indicators remain higher than a year ago.
Electricity consumption in October was similar to the same periods in 2019 and 2020. It lagged behind both periods by only about 1%. Among Slovenia’s main trading partners, Austria and France recorded lower consumption than in October 2019 (3% and 1%, respectively), while consumption in other countries was higher (1% in Italy, 2% in Germany and 4% in Croatia). Compared to October last year, consumption was higher in most of Slovenia’s trading partners - 1% in Germany, 2% in Italy and as much as 4% in Croatia. In Croatia we believe the increase is due to a better autumn tourism season than last year (also due to the base effect). In France, consumption was down 5% year-on-year in October, mainly due to weather-related power outages.
Industrial electricity consumption in September was similar to the same periods in 2019 and 2020, while small business consumption lagged behind. Industrial electricity consumption, which had fallen in July and August (by 4.9% and 3.4%, respectively) compared to the same periods of 2019, was back near the level of the same period of 2019 in September, as was household consumption. Small business consumption, which has lagged behind the same period in 2019 since the start of the epidemic, fell by 4.9% in September (by 3.3% in July and by 5.3% in August). Compared to September last year, industrial consumption remained about the same, while small business and household consumption fell by 1.4%.
Freight traffic on Slovenian motorways was up only 3% year-on-year in October, mainly due to one working day less. The year-on-year growth was associated with lower traffic at the beginning of the second wave of the epidemic last year. The volume of freight traffic was a few percent lower than in October 2019, but after adjusting the data for working days, it was almost 2% higher than in October 2019.
According to data on the fiscal verification of invoices, turnover in October was 15% higher year-on-year and 2% higher than in the same period of 2019. Compared to September, year-on-year growth in October strengthened in all activities, mainly due to low sales last year following the declaration of the epidemic and introduction of restrictions on the sale of goods and services. The highest increase in year-on-year growth was recorded in activities that were almost completely shut down during the same period last year (accommodation and food service activities, travel agency activities and arts, entertainment and recreation). Turnover growth compared to October 2019 was lower than in September due to the implementation of the recovered/vaccinated/tested rule and one less working day in October this year. Nevertheless, turnover in trade, which accounted for almost 80% of all turnover, was 3% higher than in October 2019. Turnover in food and beverage service activities as well as accommodation and sports activities continues to be higher, probably due to the continued redemption of vouchers, as well as higher prices in some of these activities. Turnover in creative, arts and entertainment activities, travel agency activities and gambling and betting activities was about 40% lower than that of the same period of 2019.
Trade in goods declined in the third quarter. Compared to the previous quarter, real exports of goods to EU Member States fell slightly in the third quarter (by 0.5%, seasonally adjusted), which we believe is related to supply chain disruptions. Shortages of electronic components and bottlenecks in the supply of raw materials have mainly affected the automotive and related industries in Slovenia and its main trading partners (Germany, France), leading to a decline in vehicle exports, which remain well below the level of the same period in 2019. According to available data, the growth of exports of other main product groups (excluding metals and metal products) has also slowed down, although it continues to exceed the levels of the same period in 2019. Imports of goods from EU Member States also fell (by 3.5%, seasonally adjusted), especially imports of consumer goods (imports of passenger cars), and growth of imports of investment goods while intermediate goods also declined. At the beginning of the last quarter, export expectations are still higher than before the outbreak, and their monthly fluctuations indicate increased uncertainty, mainly related to the international environment.
Trade in services further increased in August, but remained below pre-epidemic levels. Growth in trade continued in most major services (transportation, travel, ICT, administrative and support services activities), except in construction. The increase was mainly due to the recovery in trade in tourism-related services, where export and import revenues were still around one-fifth lower than in August 2019. In the first eight months, total trade in services was about one-tenth lower than in the same period of 2019, mainly due to about 50% lower trade volumes in tourism. We estimate that in this period the decline in spending by foreign tourists, same-day visitors and transit passengers in Slovenia was greater than the decline in spending by Slovenian tourists abroad. Most other important groups of service activities are exceeding the comparable pre-crisis levels.
Manufacturing output also continued to rise in the third quarter, but the recovery slowed down. In addition to the current decline in July, this was also due to modest growth in September. In our estimation, this is due to the supply chain problems that have hit the automotive industry and its suppliers the hardest. Quarter-on-quarter, activity increased the most in high-technology industries, while growth was more modest in medium-low and low-technology industries and declined in medium-high-technology industries, including the automotive industry. Manufacturing output growth was again relatively strong in the third quarter (9.7% in the third quarter and 29.4% in the second quarter), still partly due to the low base; growth was also solid compared to the same quarter in 2019. The largest increase compared to the level of the third quarter last year was recorded by medium-low technology industries, and the lowest by medium-high technology industries, due to the decline in the automotive industry.
Construction activity increased slightly in August but was still lower than a year ago. At the monthly level, the value of construction output increased by 1.4% but was down 6.8% year-on-year. Despite considerable monthly fluctuations, activity in civil engineering works and specialised construction remains at the levels reached at the beginning of the year, as does residential construction. However, activity in non-residential construction is declining. The stock of contracts increased in the first half of the year and exceeded the previous year's level, while it fell sharply in August and was also lower year-on-year.
Construction prices continued to rise due to increases in commodity prices and the labour shortage. The implicit deflator of the value of completed construction works used to measure prices in the construction sector was 8% in August, its highest level since 2005.
Turnover in trade rose in all three main segments in August, following a sharp decline in July; according to preliminary data, growth continued in September. Overall, turnover was 9% higher year-on-year in the first eight months and similar to the same period in 2019. Compared to 2019, it was lower only in the sale of motor vehicles and in the sale of motor fuel. In contrast, turnover in this period was 12% higher in the sale of non-food products within the retail sector, where sales via mail order and the internet more than doubled (accounting for around 7% of total turnover), while sales of pharmaceutical and medical products, as well as computer and telecommunications equipment, rose by around a tenth. According to preliminary data, turnover in retail trade and motor vehicle sales further increased in September.
In August, real turnover in market services continued to rise. It increased by 2.3% from the previous month and by 15.3% from a year earlier. Due to the significant growth in computer services in the domestic and foreign markets, the highest increase in turnover was recorded in information and communication services where turnover had stagnated for a long period of time. In recent months, turnover in accommodation and food service activities has increased significantly, which is related to the increase in overnight stays by foreign and domestic tourists, as well as same-day visitors redeeming their last year’s and this year's vouchers. Turnover, which was 14% higher year-on-year, was still 2% lower than in August 2019. Transportation continued its moderate growth, fuelled mainly by storage activity. Turnover further declined in professional and technical activities, due to a significant fall in architectural and engineering services. Despite further increase in travel agencies, turnover also declined in administrative and support service activities. Only in a few other activities, such as travel and employment agencies, was the gap with turnover in the same month of 2019 significant.
The volume of road freight transport continued to increase in the second quarter of 2021 and was significantly higher than in the same period in 2019, while the volume of rail transport decreased slightly. Compared to the previous quarter, the volume of road transport performed by Slovenian road freight operators abroad increased by 4% and the volume of road transport performed at least partially on Slovenian territory (exports, imports and domestic transport combined) increased by 8%. Due to last year's low base, the volume of road transport increased by almost three tenths year-on-year. Rail freight transport was also higher year-on-year (by almost a tenth) but was down by a few percent compared to the same period of the year before the epidemic.
Household consumption increased during the summer months, especially in tourism-related services, and consumption growth of non-food and food products remained high, while spending on new cars was lower year-on-year. In the summer, households increased their spending mainly on accommodation and food service activities (accommodation, food and beverage service activities) at home, also due to the redemption of vouchers, and abroad, where many more Slovenians travelled this year than last year. Expenditure on creative, arts and entertainment activities was also significantly higher in the third quarter than a year earlier, also reflecting last year's low base, as was expenditure on sports services, which was 17% higher in nominal terms than in the same months of 2019. Expenditure on food and beverages and non-food products also remained much higher year-on-year, while growth in sales of durable goods slowed considerably. Sales of passenger cars were lower year-on-year, which we assess is also due to car delivery delays.
In October, the value of the sentiment indicator deteriorated for the second month in a row. On a month-on-month basis, confidence fell in retail trade, manufacturing and among consumers. This is probably due to the still high level of uncertainty about the course of the epidemic as well as some current developments in the international environment related to supply bottlenecks and rising prices of intermediate goods and energy. The value of the confidence indicator is higher than in October last year, mainly due to significantly higher confidence in services and construction. Compared to the same period in 2019, the sentiment indicator fell slightly. It is significantly lower in the retail trade and among consumers, probably due to uncertainty about the epidemiological situation and containment measures.
Employment was at a similar level in August as in the previous two months. In the first eight months, the number of employed persons was 0.7% higher than in the same period last year. Employment growth was higher for the self-employed (1.3%) than for employees (0.6%), although the decline in the number of self-employed last year was much smaller than for employees. In August, the highest year-on-year increases were again recorded in construction and human health and social work activities. Employment growth was also high in the accommodation and food service activities, reflecting a relatively quick recovery after last year’s sharp decline, but the number of employed persons remained below the August 2019 level. The containment measures also had a strong impact on arts, entertainment and recreation where the number of employed people also remained lower this August than in August 2019.
The number of unemployed rose slightly in October, mainly due to seasonal trends related to a higher inflow of first-time job seekers into unemployment. At the end of October, 66,654 people were unemployed, 0.8% fewer than at the end of September and 20.3% fewer than a year earlier. The number of unemployed persons decreased (by 8%) also compared to the end of October 2019. According to seasonally adjusted data, the number of unemployed at the end of October was 1.7% lower than at the end of September, in line with the decline seen in recent months. Although more young people (first-time job seekers) registered as unemployed in October, as is the case every year, there were significantly fewer unemployed young people (under 25) at the end of October than last year and also fewer than at the end of October 2019. The latter was influenced, among other things, by demographic trends (decline in the number of young people) and the high demand for labour, which is also reflected in the historically high vacancy rate.
Year-on-year wage growth in August was lower than in previous months (4.8%), especially in the public sector. Here it was 3.4% and thus significantly lower than in the previous months, when it was still influenced by the epidemic-related bonus payments. In the first eight months, wages in the private sector were 11.2% higher than in the same period last year. In the private sector, the average wage increased by 5.6% year-on-year in the first eight months due to various factors, in particular the increase in the minimum wage at the beginning of the year and, according to our estimates, labour shortages; a new wage calculation method related to job retention intervention measures also plays a role.
Consumer price inflation increased significantly year-on-year in October (to 3.0%), with energy prices rising sharply. About two-thirds of the increase was due to higher prices for petroleum products (by more than 35% year-on-year) and heat energy (by almost 45%). In the face of higher commodity and energy prices and supply chain disruptions, the increase in durable goods prices strengthened further, reaching 4.6%. This is mainly due to higher car prices, which have risen significantly in recent months and were 5.6% higher year-on-year in October. Prices of semi-durable goods were lower year-on-year for the second month in a row (by 0.8%). Growth in service prices remains low at around 1%. The highest price rise among services was seen in accommodation and food service activities (5.9% year-on-year). In October, prices in the food and non-alcoholic beverages group were higher year-on-year for the first time since January (but only by 0.3%). In the coming months, however, we expect their growth to strengthen due to the low base and the expected increase in prices for certain food products.
Slovenian industrial producer prices continue to rise rapidly year-on-year, reaching 8.6% in September. Prices in domestic and foreign markets are rising rapidly. Further growth in the prices of intermediate goods, which were 13.1% higher year-on-year, and capital goods, which were 8.2% higher, continue to contribute the most to overall growth. The year-on-year increase in energy prices remained at 8.5% and their contribution to overall growth was relatively modest due to their small share. Higher intermediate goods prices and production bottlenecks are also affecting consumer price growth, which, while still relatively moderate (1.8%), is gradually strengthening. Prices of durable and non-durable goods rose in September (by 1.6% and 1.8% respectively).
The current account surplus fell again in August. In the last 12 months, it totalled EUR 3 billion, which is 5.9% of GDP. The main reason for the year-on-year decline was the lower surplus in trade in goods under the impact of deteriorating terms of trade (higher increase in import than export prices). The surplus in trade in services also remained lower year-on-year, mainly due to a lower surplus in travel. The surplus in technical, trade-related services, R&D services and construction services continues to increase. The primary income deficit decreased year-on-year, mainly due to higher subsidies from the EU budget for the agricultural and fisheries policies. In primary income, net payments of interest on external debt and net payments of income on equity were also lower. The secondary income deficit was also lower as the government received more funds from the European Social Fund and inflows of current transfers from the private sector increased.
The volume of bank loans to the domestic non-bank sector also increased slightly in September, while year-on-year growth remained modest (1.4%). After declining year-on-year since the middle of last year, lending to enterprises and NFIs increased by 0.7% year-on-year in September. Loans to enterprises and NFIs were also higher. Increased household borrowing in the form of housing loans, which rose by 8.1% year-on-year (the highest increase since 2011), continued to be the largest contributor to overall growth. The year-on-year decline in consumer credit has stabilised at around 5.5% in recent months (previously, declines had been higher). The quality of banks’ assets was solid. Thus, the share of non-performing loans remained low at 1.3% in August. After a three-month decline, the share of claims with increased credit risk rose slightly, mainly due to an increase in the accommodation and food service activities, where the share of such claims reaches almost 60% of all claims, and partly in trade, where the share of claims with increased risk, however, was below 10%.
Year-on-year revenue growth of the consolidated balance of public finances slowed down sharply in the third quarter (also due to the strong base effect), while expenditure growth was slightly higher than in the second quarter. The deficit was thus slightly higher than in the second quarter and lower in the first nine months of the year than in the same period last year. The extremely high revenue growth in the second quarter of this year (36.1%) slowed down in the third quarter (to 5.3%), especially the growth in revenues from VAT and corporate income. The growth of wages and thus of revenues from social contributions and income tax has also slowed down. The high year-on-year growth in the second quarter is a consequence of the low base last year due to the deteriorated economic situation, the effect of approved deferrals, instalment payments and tax exemptions. Year-on-year expenditure growth was slightly higher in the third quarter (6.3%) than in the second (4.0%), mainly due to a slower decline in subsidies and stronger growth in investment and payments to the EU budget, while growth in other expenditure categories slowed. Expenditure on measures to mitigate the consequences of COVID-19 was lower in the third quarter than in the same period last year and, as many measures expired, also significantly lower than in the first and second quarters of this year. In the first nine months of this year, expenditure on these measures (EUR 2.4 billion) was EUR 775 million higher than in the same period last year.
Slovenia had a positive net budgetary position against the EU budget in the first nine months (at EUR 129.8 million). In this period, Slovenia received EUR 570.1 million from the EU budget (35.2% of revenue envisaged in the state budget for 2021) and paid EUR 440.4 million into it (77.9% of planned payments). The bulk of receipts were resources from structural funds (43.5% of all reimbursements to the state budget; 35.3% of the planned funds were absorbed) and resources for the implementation of the Common Agricultural and Fisheries Policy (39.1%; 73.5%). The share of receipts from the Cohesion Fund was 10.3% and 23.8% of the planned funds were reimbursed to the state budget. According to SVRK data, beneficiaries received 62% of funds available under the 2014–2020 financial perspective by the end of September 2021.