Slovenian Economic Mirror 6/2023: Short-term indicators of economic activity mostly declined over the summer, economic sentiment improved slightly in September, but confidence remains relatively low
Most of the available economic indicators in Slovenia deteriorated in the summer. After months of decline, exports and imports of goods increased slightly in August, while manufacturing output continued to contract. The year-on-year decline in activity in export-oriented sectors deepened, especially in energy-intensive industries, and export expectations in manufacturing remain very low. Data on electricity consumption for August and September also point to a significant year-on-year decline in electricity consumption, especially in industrial consumption. Growth in trade in services slowed, although it remains high year-on-year due to a significant recovery in trade in tourism-related services. In the summer, Slovenian households spent less on food, non-food products, overnight stays in Slovenia and new cars than a year earlier. Construction activity was still significantly higher than last year. Economic sentiment, which had deteriorated since the beginning of the year, improved slightly in September but remained relatively low. Inflation rose as expected, to 7.5% in September (from 6.2%). This was mainly the result of expiry of temporary measures to mitigate energy price increases. In addition, the prices of food and certain services continue to make a significant contribution to year-on-year inflation. In the selected topic, we present the results of the Eurobarometer survey on life satisfaction, which in Slovenia is well above the EU average. Respondents in Slovenia remain most concerned about inflation, health and healthcare, pensions and energy supply.
Sentiment indicators point to a slowdown in global economic growth and a contraction in euro area economic activity in the third quarter. The outlook for the euro area remains low for this year. The composite Purchasing Managers’ Index (PMI) for the global economy has gradually declined in recent months and was only just above the 50 mark (threshold between economic expansion and contraction) in September. For the euro area, the composite indicator has been pointing to a decline in activity for several months, especially in manufacturing, and the indicator for the services sector has also deteriorated. The OECD and the IMF expect the global economy to grow by 3% this year, easing off to 2.7%–2.9% in 2024, with risks tilted to the downside. These forecasts do not take into account the possible consequences of an escalation of the conflict in the Middle East, especially with regard to oil prices. Economic growth in the euro area is expected to remain very low on average this year (between 0.6 and 0.8%), as a pick-up in economic activity is expected only in early 2024. The contraction in economic activity in Germany, Slovenia’s main trading partner, is also expected to slow by the end of the year.
Most of the available economic indicators for Slovenia deteriorated in July and August. After months of decline, exports and imports of goods increased slightly in August, while manufacturing output continued to contract. The year-on-year decline in activity in export-oriented sectors deepened, with energy-intensive industries being the hardest hit. Export expectations in manufacturing also remained very low, falling to their lowest level since mid-2020 in September. Data on electricity consumption for August and September also point to a significant year-on-year decline in electricity consumption, particularly to lower industrial consumption. Current growth in services trade also declined, but remains strong year-on-year due to a significant recovery in trade in tourism-related services. Real turnover in market services declined in July, most notably in transport. Turnover in most trade sectors also fell, with the negative trend continuing in August, according to preliminary data. Year-on-year, turnover remained higher only in the sale of motor vehicles. In July and August, Slovenian households spent less on food, non-food products, overnight stays in Slovenia and new cars than a year earlier. According to data on the fiscal verification of invoices, total turnover, which was weaker in August, increased slightly in September. According to data on the value of work put in place, construction activity decreased in July, although it was still significantly higher than last year. Economic sentiment, which had deteriorated since the beginning of the year, improved slightly in September but remained relatively low. Confidence in most sectors remained lower than a year ago and in the pre-epidemic period.
The number of registered unemployed continued to fall in September. The average gross wage rose by 3.7% in real terms in July and by 1.4% in the first seven months of the year. At the end of September, unemployment totalled 45,999, which is 11.6% less than a year ago. Amid severe labour shortages, the number of long-term unemployed fell by 21% year-on-year. Employment growth in July was slightly lower than in previous months, mainly due to a slowdown in year-on-year employment growth in construction and manufacturing. For some time now, employment of foreign workers has contributed more than 80% to employment growth. The average wage in the first seven months, including July, increased year-on-year in real terms (by 1.4%). The increase in the public sector was more pronounced than in the private sector, mainly due to the wage increase in the public sector agreed last year. The number of financial social assistance (FSA) beneficiaries continued to fall and the number of unemployment benefit (UB) recipients was also low.
As expected, year-on-year growth in consumer prices accelerated in September (from 6.2 to 7.5%). This was mainly due to the expiry of the temporary measures to mitigate the high energy prices. In addition, the prices of food, whose growth has slowed and reached the lowest level since April 2022, and services, especially health and catering services, continue to be major contributors to year-on-year inflation. Slovenian industrial producer prices fell at the monthly level for the fifth month in a row in August. The year-on-year growth rate has thus slowed markedly (to 2.1%) in recent months, compared to the growth of almost 20% at the end of last year.
In the first eight months of this year, the deficit of the consolidated balance of public finances was higher year-on-year. It totalled EUR 800 million, compared with EUR 388 million in the same period last year. Revenues increased by 3.5% year-on-year. This was mainly driven by increased growth in social contributions and income tax revenues, alongside growth in employment and wages. Growth in excise revenue has also accelerated, due to higher excise duties on energy and tobacco products. However, the growth of some other tax revenues, notably VAT, has slowed considerably, linked to the fiscal measures to mitigate the consequences of the energy crisis and a slowdown in private consumption growth. Revenue from corporate income tax and receipts from the EU budget, and some capital and transfer revenues also declined significantly. Expenditure increased by 6% year-on-year. The main reason for the increase was the rise in wages and other remunerations (12.2%) as a result of last year’s agreement on the public sector wage increase. Various transfers were also higher than a year ago. The increase this year was due to measures to mitigate the consequences of rising energy prices. Investment expenditure was 11.7% higher year-on-year.