News

Reflecting the continuation of economic growth in the euro area in the first quarter of the year, the values of short-term indicators of economic activity and confidence indicate further improvement. In the first quarter of 2014, euro area GDP was up 0.9% year on year, again mainly due to higher exports. Private and investment consumption also made positive contributions to GDP change. Growth was nevertheless somewhat lower than expected by the ECB, so that it lowered its forecast for this year by 0.2 percentage points to 1.0%. Like other international institutions, the ECB expects economic activity to be supported by stronger domestic demand. Among the downside risks, it cites geopolitical risks and lower-than-expected economic activity in emerging market economies.
 
The values of short-term indicators of economic activity in Slovenia are higher than in the same period last year, except for turnover in retail trade. In the first four months of 2014 as a whole, real exports, which otherwise remained unchanged at the monthly level in April, seasonally adjusted, were much higher in than in the same period last year. Production volume in manufacturing (which otherwise also declined slightly in April) has been growing modestly this year and was also up year on year. Expectations regarding demand in the next months are favourable as well. Construction activity strengthened significantly again in April, almost reaching the level seen three years earlier. Activity increased most notably in the construction of civil-engineering structures, being also slightly higher in the construction of buildings. Turnover in retail trade rose somewhat in April, but persists at a similar, very low, level for as long as a year.

Growth in employment has been rising modestly since February, while registered unemployment slowly decreases and average gross earnings stagnate (seasonally adjusted). The modest growth of the number of employed persons, seen since the second quarter of 2013, has strengthened somewhat since February this year (in April to 0.3%, seasonally adjusted). Employment was also up year on year. The number of registered unemployed persons has been falling since March (seasonally adjusted), mainly due to increased hiring. At the end of June it was similar to that a year earlier. Average gross earnings also remained almost unchanged in April; they rose slightly only in the public sector, primarily in public corporations, and, after stagnating in the last two quarters, also in the general government sector due to the payment of the previously suspended promotions.

Consumer price growth stood at 0.1% in June. The low level of inflation was a result of seasonal movements. At the monthly level, it was up largely as a result of higher prices of holiday packages, while it was reduced by lower prices of fruit. Weak domestic demand and the absence of price shocks from the international environment continue to influence the low year-on-year growth (0.8%), which remains marked primarily by higher services prices. In the euro area, in June, year-on-year price growth was the lowest in the last five years (0.5%).

In the first quarter, cost competitiveness again improved more than, on average, in the euro area and the EU. Unit labour costs per employee continued to decline in real terms. At the same time, there was an increase in labour productivity, for the second quarter in a row mainly due to higher economic activity. The majority of other euro area and EU countries recorded smaller real declines in unit labour costs than Slovenia. The relative position of Slovenia in the euro area and the EU has thus been improving since 2010, but is still worse than before the crisis.

The deleveraging of non-banking sectors is easing gradually, while banks continue to deleverage abroad; interest rates for businesses remain high, the share of non-performing claims rose again. In the first five months of the year, the volume of loans to domestic non-banking sectors was approximately EUR 480 m lower (in the same period last year, approximately EUR 850 m lower). In our estimation, this has to do with the slightly improved access to sources of debt financing for credit-worthy customers, though the borrowing terms remain fairly tight also for these customers. Banks continued to make debt repayments abroad. The creation of additional impairments and provisions slowed. In the first four months of the year, their level was around 40% lower year on year. The share of non-performing claims rose by 0.3 percentage points to 14.8%.

According to the data from the consolidated balance sheet, the general government deficit in the first four months (EUR 707 m) was EUR 276 m smaller than a year before. Revenue was 6.8% higher, expenditure 0.6% higher. For the first time in two years, revenue increased in all categories. The main contributors to expenditure growth were investment and interest payments, while expenditure on goods and services and transfers to individuals declined.