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Slovenian Economic Mirror 5/2024: In the first four to five months, activity in most sectors was slightly higher year-on-year, while activity in construction was lower
In Slovenia, manufacturing output contracted in May after rising in April, while exports of goods fell slightly. In the first five months, manufacturing output was similar to a year ago (0.2% higher), while exports of goods were higher (by 1.0%). Sentiment in export-oriented activities deteriorated in June, with expectations for export orders falling to their lowest level of the year. In April, real turnover increased in most trade sectors and was up 1.4% year-on-year in the first four months. According to preliminary SURS data, turnover fell in most trade sectors in May. Total real turnover in market services fell in April but was mostly up year-on-year in the first four months (by 2.2% on average). Construction activity, which has gradually declined over the past year, was 4.1% lower year-on-year in the first five months. The confidence indicator in construction, which continued to fall in June, was below last year's level. Confidence indicators in other sectors and among consumers remain higher year-on-year. Available data indicate that household consumption increased year-on-year at the beginning of the second quarter. Unemployment continues to fall, with a total of 43,369 people registered as unemployed at the end of June, 6.1% fewer than a year earlier. Amid labour shortage, the growth in the number of persons in employment was driven by the hiring of foreign workers. In the first four months, the average gross wage increased by 3.6% overall in real terms – by 4.7% in the private sector and by 1.5% in the public sector. Year-on-year inflation in June was the lowest it has been in three years (1.5%). Amid weakening of upward price pressure, this was mostly due to the high base of last June when the reduced VAT rate on some energy products was abolished. The slowdown in service prices has been interrupted in recent months, with their year-on-year growth still above 4% in June. In the Selected topics, we focused on the key messages of the Ageing Report 2024, produced by the European Commission in cooperation with Member States, and the latest Eurobarometer survey on life satisfaction.
The sentiment indicators available point to a further strengthening of euro area economic activity in the second quarter. The composite Purchasing Managers' Index (PMI) for the euro area rose on average in the second quarter, driven by improvement in services. Meanwhile, the average value of the manufacturing PMI, which declined sharply in June, remained at the level of the first quarter. The Economic Sentiment Indicator (ESI) in the euro area, which has not changed significantly since the beginning of the year, remained largely unchanged year-on-year in June.
In the first five months, the year-on-year growth of Slovenia’s export-oriented activities was modest, with significant monthly fluctuations; in the first quarter, Slovenia’s export market share on the EU market returned to its pre-energy crisis level (i.e. Q1 2021). Manufacturing output in the first five months was similar to the same period last year (0.2% higher). Exports of goods, which fell in May compared to April, were higher year-on-year in the first five months (by 1.0%), mainly due to growth in EU countries. Sentiment in export-oriented activities deteriorated in June, with expectations for export orders falling to their lowest level this year. In the first five months, imports of goods were also higher year-on-year (by 1.3%), with the rise mainly driven by imports from non-EU countries. Amid a year-on-year decline in EU goods imports and growth in Slovenian exports, Slovenia’s export market share continued to grow in the first quarter, exceeding the level before the energy crisis (i.e. Q1 2021), when it had declined significantly.
The improvement in price competitiveness came to a standstill in Q2 2024, and the cost and price competitiveness of Slovenian exporters remained unfavourable. The cost competitiveness (REER ulc) and price competitiveness (REER ppi, REER hicp) indicators deteriorated sharply in 2022 and the first half of 2023, due to higher growth in unit labour costs and prices compared to Slovenia’s trading partners. Since mid-2023, the decline in relative prices (slower domestic price growth compared to trading partners) led to an improvement in price competitiveness indicators. However, this improvement was halted in the second quarter of this year (due to the appreciation of nominal exchange rates). The level of the REER ppi indicator remains relatively high, indicating an unfavourable price competitiveness of industrial producer prices. The decline in relative prices in the second half of last year and at the beginning of this year was accompanied by a further increase in relative (unit) labour costs and a resulting deterioration in cost competitiveness (REER ulc), which points to a decline in (unit) profits.
Activity in predominantly domestic-market-oriented activities was mostly higher year-on-year in the first four/five months. In April, real turnover increased in most trade sectors and was 1.4% higher year-on-year in the first four months. The strongest growth compared to the levels seen in first four months of last year was recorded in the sales of motor vehicles (by more than one-tenth), which contracted slightly this year (by 2.2% on average) after having grown for the past two years. According to preliminary SURS data, turnover fell in most sectors in May. Total real turnover in market services declined in April but was mostly higher year-on-year in the first four months. Only the predominantly export-oriented transportation and storage sector remained below the previous year’s levels. Construction activity was also lower year-on-year in the first five months (by 4.1%). Amid monthly fluctuations, it gradually declined. The confidence indicator in construction continued to fall in June and was also below last year's level. Confidence indicators in other sectors and among consumers are still higher year-on-year. The available data indicate that household consumption increased year-on-year at the beginning of the second quarter, especially the sales of new passenger cars and spending on tourism services abroad.
The month-on-month decline in the number of the unemployed moderated somewhat in the second quarter of this year; employment growth continues to be supported by the hiring of foreign nationals; amid a tight labour market and slightly lower inflation, wage growth in April was slightly higher than in March. At the end of June, the total number of unemployed fell by 6.1% year-on-year, while the number of long-term unemployed decreased by 13.9% amid labour shortages. Year-on-year growth in the number of persons in employment in April continued to be higher than in the final months of last year (the statistics also influenced by a methodological change in January this year). It continued to be driven by the increase in the number of foreign workers in employment, whose share of the total labour force was 15.7% in April (up by 1.4 p.p. compared to a year earlier). In the first four months, the overall average gross wage increased by 3.6% in real terms (by 7.0% in nominal terms) – by 4.7% in the private sector (by 8.2% in nominal terms) and by 1.5% in the public sector (by 4.9% in nominal terms).
Year-on-year price growth further weakened in June, reaching its lowest level in three years (1.5%). This was partly due to a further weakening of upward price pressure, but to a greater extent to the high base of last June, when the reduced VAT rate on some energy products was abolished. This also contributed to the year-on-year decline in the housing, water, electricity, gas and other fuels group (-2.3%). Prices of goods, which are showing clear signs of weakening, rose by only 0.2% year-on-year in June. The slowdown in the increase in service prices has been interrupted in recent months, though their year-on-year growth was still above 4% in June. The strongest price increase (6.7%) was observed in the restaurants and hotels group, which in our assessment is the consequence of labour shortage and the associated upward pressure on wages, but also to a certain extent to the relatively high demand.
In the first five months of this year, the deficit of the consolidated balance of public finances was lower year-on-year. It totalled EUR 78 million compared to EUR 170 million in the same period last year. Revenue increased by 11.3% year-on-year, primarily due to higher revenue from social contributions related to the transformation of the complementary health contribution into a mandatory contribution and higher revenue from corporate income tax, personal income tax and VAT. Revenue from excise duties and total receipts from the EU budget were lower year-on-year. In the first five months, expenditure increased by 10.2% year-on-year. The main contributors to growth were expenditure on salaries and wages and other personnel expenditure, the increase in expenditure on goods and services and other healthcare expenditure in connection with the transformation of the supplementary health insurance into a mandatory contribution, and transfers to individuals and households. The contribution from interest and investment expenditure was slightly lower than in the same period last year.