Slovenian Economic Mirror 1/2023: continued slowdown in economic activity at the end of last year; the economic climate improved slightly, but remains lower than a year ago
In the fourth quarter of last year, the slowdown in economic activity continued in most sectors. Turnover in trade and other market services decreased in October. Exports of goods to EU Member States also continued to decline and the slow pick-up in manufacturing activity seen in previous quarters came to a halt in November. The value of construction put in place had increased significantly year-on-year until November. According to our estimate, household consumption at the end of the year remained similar to the previous quarter. In the last quarter of 2022, the financial situation of households deteriorated slightly. The loss of purchasing power among the most vulnerable groups was cushioned by government measures to mitigate price increases. The slowdown in economic growth in most activities, elevated energy prices and relatively warm weather in the last two months of the year led to lower consumption of natural gas and electricity than in the same period in 2021. The sentiment indicator improved slightly in December for the second month in a row. Although it was still much lower than a year ago, the gap with the previous year was the smallest in seven months. In our assessment, measures to mitigate rising prices for households and companies, support for businesses and lower uncertainty related to energy supply this winter have also contributed to the improvement. The number of persons in employment continued to rise in October, especially in construction, which is still facing labour shortages, and the number of unemployed at the end of the year was about one-fifth lower than a year earlier. Inflation edged up slightly in December (to 10.3%), mainly due to a higher increase in the prices of some services, whereas last year it was mainly food prices that contributed to inflation. These are the main findings of the new Slovenian Economic Mirror published today.
Although confidence indicators for the euro area improved at the end of last year, they still point to a possible economic contraction in the last quarter. The ECB expects economic growth to slow significantly this year. Amid high inflation, tight financing conditions and low confidence, quarterly GDP growth in the euro area slowed markedly in the third quarter of 2022 and, according to the available indicators, we can assume that economic activity also contracted in the final quarter. Confidence indicators improved slightly in November and December but still remain low. The ECB expects euro area economic growth to slow from 3.4% last year to 0.5% this year amid elevated uncertainty, high prices, deterioration in household purchasing power, global slowdown and tighter financing conditions, before recovering at a moderate pace to 1.9% in 2024 as the current headwinds ease.
In Slovenia, the value of some economic activity indicators continued to decline in the last quarter of 2022. The economic climate improved in the last two months of 2022, but was still weaker than in the same period of 2021. After Slovenia’s export market share in the EU market declined again year-on-year in the third quarter, growth in the export-oriented sectors weakened further towards the end of the year. Growth in foreign trade in services was interrupted in October and real exports of goods to EU Member States continued to decline in current terms in November. The slow strengthening of manufacturing activity seen in the first three quarters of 2022 came to a halt towards the end of the year. Production in most sectors was also lower year-on-year. Turnover in trade and other market services decreased in October. The value of construction put in place increased significantly in the first 11 months of 2022, exceeding the previous year’s level by 44% in November. Natural gas consumption in November and December 2022 was 11% and 13% lower respectively than the comparable average consumption of the previous five years, and electricity consumption was 5% lower year-on-year. Household consumption remained similar on average in October and November to the previous quarter. In the last quarter of 2022, the financial situation of households deteriorated slightly in current terms and year-on-year. The impact on the most vulnerable groups was cushioned by government measures to mitigate price increases. We estimate that measures to mitigate price increases for households and enterprises, support businesses and reduce uncertainty about energy supply this winter also contributed to a slight increase in the sentiment indicator in the last two months of last year.
In October, the number of persons in employment continued to rise year-on-year, and at the end of 2022 the number of unemployed was about one-fifth lower than in 2021; the average wage was again lower in real terms in October amid high inflation. As the number of people in employment reached a record high, year-on-year growth was 2.1% in October, slightly lower than in previous months. Growth was still high in construction, which faces major labour shortages. Employment of foreigners is increasingly contributing to overall growth in the number of persons in employment. According to seasonally adjusted data, the number of registered unemployed fell further in December. The number of long-term unemployed and unemployed over 50 has also been declining for more than one and a half years. Amid high inflation, the average gross wage in October was again lower year-on-year in real terms. However, the decline was slightly lower than in previous months, reflecting a less pronounced high base effect and an increase in public sector wages in October and an increase in nominal wages in certain private sector activities facing labour shortage.
Year-on-year consumer price inflation edged up slightly in December (to 10.3%). It was higher than in November (when it was 10%) mainly due to stronger growth in services prices (7.2% year-on-year). In our estimation, this was due to the low base resulting partly from the containment measures in force at the end of 2021 and also to higher prices of services in communications, restaurants and hotels, recreational and cultural activities, and health. Food price inflation continued to be the main driver of inflation in 2022, although it weakened slightly year-on-year in December due to the high base from 2021. The year-on-year rise in energy prices also slowed slightly at the end of the year, as prices of petroleum products fell in the face of a sharp decline in oil prices on the world markets and the appreciation of the euro. The year-on-year growth of Slovenian industrial producer prices has continued to gradually slow; at 19.7% it was still high but about 2 p.p. lower than in the euro area as a whole.
The deficit of the consolidated balance of public finances widened towards the end of 2022, but in the first 11 months, at EUR 0.7 billion, it was significantly lower than in the same period of 2021. This was primarily due to lower expenditure on measures to mitigate the consequences of the epidemic, which was EUR 1.9 billion less than in the same period of 2021. At the same time, the scope of measures to cushion the impact of rising energy prices was expanded and is estimated to have contributed EUR 0.9 billion to the deficit in the first 11 months of 2022. The year-on-year increase in total expenditure in the first 11 months of 2022 was significantly lower than in 2021, reflecting lower expenditure on civil servants’ wages and subsidies to companies and lower growth of transfers to individuals and households related to measures to mitigate the consequences of the COVID-19 epidemic. Revenue in the first 11 months of 2022 was 10% higher year-on-year. Compared to the same period of 2021, revenue growth was lower, reflecting lower economic growth, the reduction of some tax burdens and the absence of one-off inflows from the sale of concessions.