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Sentiment indicators for the euro area suggest a deterioration in certain economic developments during the fourth quarter. International institutions anticipate that the euro area economy will recover over the next two years, albeit at a slightly slower pace than previously forecast. In November, the composite Purchasing Managers’ Index (PMI) fell to its lowest level (48.3) since the beginning of the year. The services PMI fell below 50 for the first time since January, signalling a contraction, while the manufacturing PMI slipped further into contractionary territory amid a persistent decline in new orders. The Economic Sentiment Indicator (ESI) for the euro area, which has remained below its long-term average for over two years, was slightly weaker on average in October and November than in the third quarter. The ECB, OECD and EC project euro area GDP growth of 0.7%–0.8% for this year, increasing to 1.1%–1.3% in 2025 and approximately 1.5% by 2026. According to the ECB’s forecast, inflation in the euro area is set to more than halve in 2024 (falling to 2.4%), before easing more gradually to 1.9% by 2026. Private consumption is expected to be the main driver of economic growth and to gradually increase as the purchasing power of wages rises and interest rates decline. In December, the ECB cut interest rates for the fourth time this year. However, the unpredictability of U.S. trade policy measures, along with potential retaliatory actions by China, the EU and other countries, heightens the risks to these forecasts. Further uncertainties arise from the geopolitical situation, as tensions remain elevated and show no signs of easing.

In Slovenia, activity in most sectors was higher in the first nine to ten months than in the same period last year. Real exports and imports of goods decreased month-on-month in October but remained higher year-on-year on average in the first ten months (exports by 3.3% and imports by 3.2%). Exports of goods declined month-on-month for the third consecutive month; amid weak sentiment in industry among Slovenia’s main trading partners, trade with EU countries in particular has declined. Exports of road vehicles fell to their lowest level since the end of 2022, and exports of some other main product groups (e.g. metals and metal products, pharmaceutical products, and other chemical products) also declined. Imports decreased even more sharply than exports in October, especially in intermediate goods. After contracting further in the third quarter, manufacturing output increased month-on-month in October and was 1.2% higher year-on-year in the first ten months (working day adjusted); year-on-year, production in the manufacture of motor vehicles and other transport equipment and in the wood-processing, furniture and leather industries was lower. Real turnover in all trade sectors rose quarter-on-quarter in the third quarter, while real turnover in market services fell. Both were higher year-on-year. Household consumption was also higher year-on-year at the beginning of the fourth quarter. The robust growth in passenger car sales continued and spending on food, beverages and tobacco products, non-food products, and tourist services in Slovenia also increased year-on-year. Construction activity edged up slightly in October but remained significantly lower year-on-year, by 11% in the first ten months. Economic sentiment improved in November and remained stronger compared to the same period last year. The monthly improvement was driven by positive trends across all confidence indicators, except for consumer confidence. Compared to November last year, only the sentiment indicator in construction was lower. The economic sentiment indicator has been below its long-term average for almost two years, mainly due to the low confidence in manufacturing.

On the labour market, the record-high number of persons in employment (seasonally adjusted) continued to stagnate in September, while the number of unemployed persons in November remained unchanged compared to previous months; year-on-year, wage growth remained relatively high in September. In September, the number of persons in employment continued to grow in public services and construction, while it has gradually declined in manufacturing since mid-2023 and remained stagnant in market services for nearly a year (seasonally adjusted). The share of foreign citizens among all persons in employment was 15.9% in September, 1.2 p.p. higher than a year earlier. In November, the number of unemployed persons increased slightly. However, when seasonally adjusted, it remained similar to the previous months. Year-on-year, it was 3.1% lower in November, representing a smaller decrease compared to previous months. In September, year-on-year growth in the average gross wage remained relatively high (5.5% in real terms and 6.1% in nominal terms). In the public sector, wage growth was primarily driven by an increase in the value of the pay scale grades following a partial wage adjustment for inflation in June. In the private sector, where wage growth has outpaced that of the public sector this year, labour shortages continue to play a significant role in driving wage increases.

Following a downturn in October, annual inflation rose in November, as expected (to 1.7%), largely due to the lower base from last year related to the full exemption from the RES and CHP contribution in November last year. In addition, electricity prices rose 16.8% month-on-month in November, due to the transition to the peak season for network charges, with the increase mitigated by a change in electricity price regulation. Year-on-year, electricity prices were 11.2% higher. As a result, the contribution of prices in the housing, water, electricity, and gas and other fuels group to year-on-year inflation increased by 1.1 p.p. Prices of food and non-alcoholic beverages (2.3% higher year-on-year) and petroleum products also contributed to higher inflation in November. Year-on-year growth in services prices declined, which in our estimation was due to the slowdown in price growth in the communication and recreation and culture groups. Year-on-year HICP price growth in Slovenia was 1.6% in November, compared to 2.3% in the euro area. Slovenian industrial producer prices were lower year-on-year again in October (by 1.3%), mainly due to lower prices of energy and intermediate goods. On the domestic market, prices decreased by 2.4% year-on-year, while the decline in prices on foreign markets was less pronounced (-0.2%).

At EUR 483.1 million, the consolidated general government deficit in the first ten months of this year was approximately half that in the same period last year (846.6 million). Revenues in the first ten months were 10.6% higher year-on-year. The highest growth was seen in corporate income tax revenue and non-tax revenues. Robust growth was also observed in revenue from personal income tax and, due to the transformation of complementary health insurance into a mandatory contribution, in revenue from social contributions, which accounted for the largest share of growth in general government revenue. The growth in VAT revenue slowed slightly, while revenue from excise duties stagnated. Receipts from the EU budget were lower year-on-year. Expenditure in the first ten months was 8.4% higher year-on-year. The main contributors to growth were transfers to individuals and households, mainly due to the effect of high regular annual adjustment of pensions, and payments to budgetary funds. Expenditure on goods and services and expenditure on salaries, wages and other personnel expenditure also made a significant contribution to growth in general government expenditure. Investment expenditure was lower year-on-year.