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GDP in the euro area increased by 0.2% (seasonally adjusted) in the third quarter, economic sentiment indicators at the beginning of the fourth quarter point to a continued expansion of activity. Among Slovenia’s main trading partners, quarterly GDP growth accelerated markedly in France. It also increased slightly in Austria, while in Germany and Italy it remained unchanged relative to the previous quarter. Year-on-year, GDP in all of Slovenia’s key trading partners was slightly higher, with growth in the euro area averaging 1.5% (seasonally adjusted). At the beginning of the fourth quarter, economic sentiment indicators in the euro area improved further and point to continued growth in activity. The composite Purchasing Managers’ Index (PMI) reached its highest value in the past two and a half years, owing to improvements in both the services and manufacturing components. In Germany, the further improvement in the PMI was driven particularly by the services PMI, while the manufacturing PMI remained in growth territory. The German Ifo Business Climate Index also improved, reflecting better expectations among firms regarding business conditions in the coming months. The economic sentiment indicator (ESI) for the euro area reached its highest level since mid-2023 in October, with confidence rising relative to September across all activities and among consumers.

Activity in Slovenia has strengthened on a current basis in most sectors since mid-year, and sentiment has also begun to improve across all activities. Construction activity again recorded the strongest increase in the third quarter (seasonally adjusted), exceeding last year’s level by 7% in the first nine months. Investment in infrastructure and non-residential buildings increased substantially, while investment in residential buildings remained lower year-on-year. After contracting in the first half of the year, real goods exports and manufacturing output (seasonally adjusted) also increased in the third quarter, although both remained lower year-on-year in the first nine months. In the first nine months, manufacturing of vehicles and other transport equipment recorded the largest decline – by one tenth – while output in the metal industry was around 5% lower year-on-year. In the third quarter, however, exports of road vehicles increased considerably, and exports of metals and metal products also rose somewhat (seasonally adjusted compared with the previous quarter). After declining in the second quarter, turnover in market services increased on average in July and August (seasonally adjusted). In transportation and storage and in professional and technical activities, turnover in the first eight months was also higher year-on-year. In the trade sectors, average turnover in the two summer months was generally lower than in the second quarter; turnover growth continued only in motor vehicle trade, where sales in the first eight months were 7% higher than a year earlier. In the remaining trade sectors, average year-on-year growth was below 1%. The economic sentiment indicator has been improving since mid-year. Until October, the increase in the manufacturing confidence indicator was the smallest, and it has not yet surpassed its long-term average. Consumer confidence indicator also remained below its long-term average and has not continued to improve in recent months.

Slovenia’s GDP growth in the third quarter (0.8%, seasonally adjusted) was higher than in the euro area. Exports recovered, and construction activity also recorded a significant acceleration. Compared with the same period last year, GDP was 1.7% higher, and in the first nine months it increased by 0.7% year-on-year. After declining in the first half of the year, construction investment increased markedly year-on-year in the third quarter. Despite a moderation in growth in the third quarter, private consumption remained a key driver of GDP growth this year. Government consumption also increased relative to a year earlier, following a decline in the second quarter. With exports falling year-on-year and imports rising, the contribution of net trade to GDP growth remained negative. By contrast, the contribution of changes in inventories to economic growth was positive in the third quarter.

The number of persons in employment remained broadly unchanged at the end of the third quarter relative to previous months, while the number of unemployed increased slightly again at the beginning of the fourth quarter (seasonally adjusted). With slower growth in the public sector, nominal gross wage growth eased somewhat in September. In September, the year-on-year decline in the number of persons in employment remained largest in administrative and support service activities, followed by manufacturing and construction, where firms continue to report shortages of (skilled) labour as one of key limiting factors. By contrast, year-on-year employment growth persisted in public service activities, particularly in human health and social work. In the first nine months, the total number of persons in employment was 0.4% lower than a year earlier. The number of registered unemployed persons rose slightly in October for the fourth consecutive month (0.2%, seasonally adjusted). At the end of October, 45,670 persons were unemployed, 0.5% more than a year earlier. This increase mainly reflects a higher inflow of first-time jobseekers into unemployment, which since July has largely been attributable to the rising number of foreign citizens with temporary protection status entering the unemployment register. Year-on-year nominal growth in the average gross wage strengthened somewhat in September after easing in July and August. Particularly in the public sector, wage growth, which had moderated during the summer months following the implementation of the wage reform at the beginning of the year, picked up again in September, mainly in education, which in our assessment is related to the payment of the supplement for teaching and pedagogical obligations. In the private sector, where wages continue to be influenced by excess demand for labour, their growth remained relatively high.

Year-on-year growth in consumer prices increased to 3.1% in October, with prices remaining unchanged at the monthly level. The 0.5 p.p. higher growth compared to September was driven primarily by the strengthening of price growth in the housing, water, electricity, gas and other fuels group (from 0.4% to 4.2%), which was mainly the result of a lower base after the introduction of the new electricity network charge system in October last year, starting with the cheaper summer tariff period. In October this year, the price of thermal energy also increased by 6.3%. Prices in the food and non-alcoholic beverages group, which again rose by around 7% year-on-year, again contributed the most to year-on-year inflation. Year-on-year growth in the prices of durable goods, which strengthened somewhat in October, remained moderate. Year-on-year growth in the prices of semi-durable goods was the lowest since September last year, reflecting less pronounced seasonal price increases in the clothing and footwear group. The year-on-year growth in service prices fell below 3% in the last two months.

The deficit of the consolidated general government balance was EUR 521.3 million higher year-on-year due to more modest revenue growth compared with the first nine months of last year. It amounted to EUR 954.4 million. Revenues in the first nine months rose by 6.2%, compared to a 10.9% increase in the same period last year. In the third quarter, year-on-year turnover growth (8.7%) was nevertheless considerably higher than in the second quarter, due to the increase in tax revenues (which had declined year-on-year in the second quarter) and stronger growth in non-tax revenues. Expenditure in the first nine months of this year rose by 8.4% year-on-year (by 8.6% in the same period last year). In the third quarter, expenditure growth slowed relative to the second quarter (to 7.4%), reflecting more moderate growth in wages and other employee compensation – which, owing to the implementation of the pay reform, contribute more to overall expenditure growth than last year – as well as a deceleration in allocations to reserves (budgetary funds). The bulk of the consolidated general government deficit stems from the central government budget deficit, which amounted to EUR 952.5 million in the first nine months of this year. According to preliminary data, however, it was somewhat lower in the first ten months of this year (EUR 910 million).