Slovenian Economic Mirror
Slovenian Economic Mirror 5/2023
The values of some short-term economic indicators for Slovenia, relating to international trade in goods and manufacturing activity, declined on average in April and May compared to the first quarter. Real turnover in market services also fell significantly in April and was also lower year-on-year. Real turnover in retail trade excluding fuel rose slightly month-on-month in April, but remained significantly lower year-on-year. According to data on the fiscal verification of invoices, total real turnover in the second quarter was lower year-on-year for the first time in two years. Construction activity, which increased in May after falling in April, remained significantly higher also year-on-year. Economic sentiment, which has been deteriorating since the beginning of the year, moved further from its long-term average. In the second quarter, only sentiment among consumers and in retail trade improved compared to the first quarter. Year-on-year growth in consumer prices slowed significantly in June (6.9%) and was the lowest since April last year. Core inflation remained at a relatively high level (8%) and has not yet started to fall. The number of registered unemployed was at an all-time low in June.
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According to the available indicators for the euro area, there are no signs of a visible recovery in economic activity in the second quarter, following a slight decline in the previous two quarters. As in the last quarter of last year, GDP contracted by 0.1% in the first quarter of this year, with private and government consumption falling. According to the survey indicators, there was no visible recovery in the second quarter either. The average quarterly value of the composite Purchasing Managers’ Index (PMI) rose only slightly (to 52.3) compared to the previous quarter. Growth was driven by services, while manufacturing activity continued to decline. Companies also have lower expectations for future production and new orders. The manufacturing PMI of Slovenia’s main trading partners (Germany, Italy and Austria) in June was well below the 50 mark, indicating a contraction, and was the lowest since the beginning of the epidemic. According to the ECB’s June forecast, economic activity in the euro area is projected to pick up from the middle of the year, underpinned by strengthening global demand, lower inflation and a robust labour market supporting disposable income growth.
Economic growth in the countries of Central, Eastern and Southeastern Europe will slow drastically this year. The still high inflation, the tightening of monetary policy and a weak international environment are all weighing on the region’s economies. After slowing in the last quarter of last year, GDP growth in many countries of the region continued to weaken in the first quarter of the current year and even slipped into negative territory, including in two of Slovenia’s main trading partners in the region, the Czech Republic and Hungary. For 2023, the WIIW forecasts a slowdown in growth to an average of 1.2% for the EU Member States in the region. Romania and Croatia will have comparatively strong growth (3% and 2.5% respectively), while the Visegrad countries’ economies are set to expand at an average of 0.6%. The economies of the Western Balkans will grow at an average of 1.9%. After a decline of 2.1% last year, the Russian economy, despite suffering from sanctions and a sharp drop in energy revenues, is expected to grow by 1% again this year, thanks to a booming defence industry. Next year, growth in the region is projected to pick up.
The average energy prices on international markets fell further in the second quarter. Given the relatively full storage capacities for this time of year (capacities were 77.3% full at the end of June) and the associated lower supply uncertainty in the second half of the year, euro prices of natural gas on the European market (Dutch TTF) remained similar in June to the previous month, while they were almost 70% lower year-on-year. Compared to the previous quarter, gas prices fell by 34% in the second quarter. Amid weak demand, the Brent Crude oil price was also significantly lower year-on-year in June, with a similar decline in the dollar and euro prices (by around 40%). Compared to the previous month, the average prices per barrel fell by 1%, with the dollar price down to USD 74.8 and the euro price down to EUR 69.1. Compared to the previous quarter, the average dollar oil price was 3.4% lower in the second quarter and the euro price was 4.9% lower. According to the World Bank, the average dollar price of non-energy commodities continued to fall in June (by 1.9% month-on-month and 15% year-on-year) and is now at the same level as two years ago. On the international commodity markets, prices of all commodity groups were noticeably lower year-on-year, most notably those of fertilisers (by 45%).
Slovenia’s competitiveness indicators deteriorated significantly in the first half of the year. This was due to relatively higher growth in prices (REER PPI and REER HICP) and unit labour costs (REER ULC) than in Slovenia’s trading partners, while the exchange rate of the euro against the basket of currencies of Slovenia’s main trading partners (NEER) has remained relatively stable this year. The gap was pronounced especially in the growth of industrial producer prices in manufacturing (PPI), where relative prices had already started to rise last year and the REER PPI reached its highest level ever in the second quarter of this year. The cost competitiveness indicator (REER ULC) also deteriorated further in the first quarter (latest available data), reaching its highest level since the global financial crisis, reflecting faster growth in unit labour costs.
Most available economic indicators in Slovenia deteriorated in the second quarter. Trade in goods continued to decline in May and remained below the previous year’s level. This was mainly due to a further decline in imports of goods, while real exports of goods increased slightly again after months of decline. Manufacturing output rebounded strongly in May after contracting in April, but it remained below the first quarter level on average in the second quarter. In most industries, most notably in energy-intensive ones, it was lower year-on-year, while it was significantly higher in high-technology industries. After increasing in the first quarter, real turnover in market services declined significantly in April. In addition to transportation and storage, where turnover has been declining since May last year, turnover also declined in most other market services in April. Turnover in services was also down year-on-year in April. Real turnover in retail trade excluding fuel rose slightly month-on-month in April but remained significantly lower year-on-year. Households spent less on food, non-food products and overnight stays at home in April and May than a year earlier but more on cars and travel abroad. Based on data on construction put in place, construction activity declined in April, while it remained significantly higher year-on-year. The economic climate also deteriorated on average in the second quarter compared to the first quarter, and sentiment also deteriorated significantly compared to the second quarter of last year.
Electricity consumption was 16% lower year-on-year in June. According to our estimate, this was mainly due to lower industrial consumption, especially in the energy-intensive part of the industrial sector. Household consumption may also have contributed to lower year-on-year consumption as a result of more rational utilisation of energy. Slovenia’s main trading partners also recorded a year-on-year decline in consumption in June (Austria by 13%, Italy by 7%, Croatia by 6%, France by 5% and Germany by 2%).
Electricity consumption in the distribution network remained lower year-on-year in June in all consumption groups. As in the previous few months, the sharpest decline was seen in industrial consumption (by 10.6% year-on-year), which could also indicate a year-on-year decline in industrial production. The year-on-year decline in household consumption in June (by 5.3%) was higher than in the previous month (by 3.1%), which could be due to a more rational utilisation of energy encouraged by the expiry of the reduced VAT rate on energy. Small business consumption was 3.5% lower year-on-year in June.
For the third month in a row, natural gas consumption in June was slightly higher than the comparable average consumption in previous years. The higher consumption in recent months was due to cooler temperatures that extended the heating season (in April) and lower gas market prices compared to the same period last year, which prompted some companies to increase their production (e.g. in the steel industry). Slovenia almost reached the EU target of reducing gas consumption by at least 15% between August last year and March this year (by 14%). In the first three months of the extended gas demand reduction period, gas consumption in Slovenia was slightly above the comparable average consumption (by almost 3% in June). According to Eurostat, EU Member States reduced their gas consumption by an average of 13% in April–May (Slovenia increased it by 1%).
Year-on-year nominal growth in the value of fiscally verified invoices moderated to 2% (from 7% in May), while in real terms it was lower year-on-year for the fourth month in a row amid strong price growth. The lower year-on-year nominal growth this year was mainly due to moderation of turnover in trade (by 3%), which accounted for three-quarters of the total value of fiscally verified invoices, and year-on-year lower turnover in accommodation and food service activities. Turnover in the sale of motor vehicles was, similar to previous months, up 18% in nominal terms. Turnover in retail trade increased by 1% (by 5% in May), while it fell by 2% year-on-year in wholesale trade (it increased by 4% in May). Turnover in accommodation and food service activities was lower year-on-year in June for the first time this year, due to high turnover last year before the expiry of the deadline for the redemption of tourism vouchers. Year-on-year growth in creative, arts and entertainment activities was lower in June than in previous months, while turnover in sports activities and gambling and betting activities declined year-on-year after months of growth (overall growth in other services was 9%).
Trade in goods continued to decline in May and remained lower year-on-year; sentiment in export-oriented activities is low. Real imports of goods continued to decline in May, with imports of intermediate goods and consumer goods (seasonally adjusted) in particular declining significantly in recent months. Real exports of goods increased slightly in May (after several months of decline), mainly due to an increase in exports to non-EU countries (seasonally adjusted). Exports to EU Member States, which account for around 75% of all Slovenian goods exports, remained at a similar level to that in April, while exports to Italy and Austria in particular have been declining since the beginning of the year. Compared to the same period last year, trade in goods (also with EU Member States) was lower in the first five months of the year (exports by 2.5% and imports by 6.8%). The weak economic activity in Slovenia’s main trading partners is having a negative impact on sentiment and expectations in export-oriented activities. Thus expectations for export orders fell in June, to the lowest level since August 2020.
After almost two years of contraction, Slovenia’s export market share in the EU market increased year-on-year in the first quarter of 2023 (by 4.2% according to preliminary estimates). The market share in industrial machinery and equipment, one of the few product groups whose market share has increased in the last two years, has continued to grow. After declining last year, the market share of the pharmaceutical sector also increased year-on-year in the first quarter. With the exception of the paper industry, the energy-intensive product groups (chemical products, non-metallic mineral products and basic metals), whose production and market share had declined significantly at the end of last year amid an uncertain energy supply and price environment, also increased their market shares. The decline in the market share of road vehicles has continued, with the growth of Slovenian exports not keeping pace with the sharp acceleration in the euro value of EU Member States’ imports.
Trade in services increased again in May in current terms after contracting in April. The increase was mainly due to trade in other business services and transport services. The latter increased in May after several months of decline but remained significantly lower than at the beginning of the year. After several months of growth, tourism-related services remained at a similar level in May as in April. Among main services, construction and ICT services also saw a decrease in trade (seasonally adjusted). Year-on-year growth in trade in services remained strong in the first five months, with exports rising by 9.7% and imports by 6.7%. In particular, trade in tourism-related services recovered significantly, as spending by foreign tourists, same-day visitors and transit passengers in Slovenia increased by 13.7% year-on-year, while spending by Slovenian tourists abroad increased by 29.4%.
Manufacturing output recovered strongly in May after contracting in April, but it remained below the first quarter level in the two months as a whole. In May, it increased in all industry groups according to technology intensity. In April and May it was on average below the first quarter average, except in high-technology industries, which nevertheless exceeded the level of the same period last year in the first five months of this year. Output in most medium-high-technology industries (with the exception of the energy-intensive chemical industry) was also higher year-on-year. Output in all energy-intensive industries and in most less-technology-intensive industries remained lower in the first five months than a year ago. The outlook for manufacturing remains poor. In June, most companies still did not expect exports to pick up in the coming months.
According to data on the value of construction work put in place, construction activity increased by 4% in May. The value rose after falling in April and was 25% higher compared to May last year. In the first five months, it was on average 24% higher than the same period last year. For buildings, it went up by 21%, for civil engineering by 22% and for specialised construction activities by 37%.
However, some other data suggest significantly lower growth in construction activity. Data on the value of industrial production in two activities traditionally strongly linked to construction do not point to such strong growth. Production in other mining and quarrying was 14% lower year-on-year in May, while it was 13% lower in the manufacture of other non-metallic mineral products.
In April, turnover in the sale of motor vehicles was higher year-on-year, while it was lower in wholesale and retail trade. Turnover in the sale of motor vehicles, which has been rising in current terms since the second half of last year, was up by 15.2% year-on-year in April. After declining in current terms in the previous three months, the year-on-year decline of turnover in wholesale trade (by 8.3%) intensified in April. The year-on-year decline in retail trade remained relatively high in April, although turnover remained at previous month’s level. Turnover in retail sale of food, beverages and tobacco fell by 6.9% year-on-year, while in the sale of non-food products it fell by 6.4%. According to preliminary SURS data, turnover in May was still lower year-on-year in retail trade and higher in the sale of motor vehicles.
Real turnover in market services fell significantly in April. After rising in the first quarter, it fell by 4% month-on-month. In addition to transportation and storage, where turnover has been declining since May last year, turnover was down in most other market services in April, especially in information and communication activities, with both main sectors (telecommunications and computer services) contributing to the decline. The decline was somewhat smaller in professional and technical activities, where nevertheless turnover fell in all segments. The decline was smallest in administrative and support service activities, while turnover increased again in employment services. Turnover in accommodation and food service activities was similar to the previous month. Year-on-year, total turnover fell by 2.2% in real terms in April due to a decline in turnover in transportation and storage and information and communication activities. It remained below pre-epidemic (April 2019) levels in administrative and support service activities (by 9%) and, after a prolonged period, in transportation and storage (by 4%).
Compared to a year earlier, households in Slovenia spent more on cars and travel abroad and less on food, non-food products and overnight stays in April and May. Sales of passenger cars to natural persons in the two months were on average 8% above the previous year’s level, mainly due to the low base against the backdrop of last year’s supply chain problems. Expenditure on tourist services abroad was also higher year-on-year, while the number of overnight stays by domestic tourists in Slovenia was significantly lower than a year ago, when their number increased sharply due to the redemption of tourism vouchers. Purchases of food, beverages and tobacco and non-food products were also lower year-on-year on average in April and May (by 5% and 6% in real terms respectively).
According to data on the fiscal verification of invoices, total turnover in the second quarter was 5% above the previous year’s level in nominal terms, but in real terms it declined for the first time in two years.
The sentiment indicator fell for the sixth consecutive month in June. Sentiment deteriorated by 1.8 p.p. month-on-month. This was due to the negative impact of confidence indicators in services and among consumers and to some extent in manufacturing and construction. Only the contribution of the retail trade indicator was positive. After a gradual increase since the beginning of the year, consumer confidence fell in June for the first time this year. All indicator components deteriorated, especially households’ expectations about their financial situation. Enterprises in services report in particular a deterioration in their business situation, while those in manufacturing and construction still report a deterioration on their order books, which is related to the uncertain economic situation and weak foreign demand. Compared to June last year, the value of the economic sentiment indicator fell by 5.4 p.p. Confidence was down in all activities, the most in manufacturing and among consumers. The economic climate also deteriorated on average in the second quarter compared to the first quarter, and sentiment also deteriorated significantly compared to the second quarter of last year.
After a decline in the previous three quarters, the volume of road freight transport increased in the first quarter, while the volume of rail freight transport continued to decline. After a long period of decline, the volume of road transport performed by Slovenian vehicles increased quarter-on-quarter, due to a renewed increase in cross-trade, while it was still 5% lower year-on-year. It was 7% higher compared to the same quarter in 2019 (cross-trade was 2% higher, while other road traffic performed at least partially on Slovenian territory was 11% higher). The share of cross-trade in total transport, which was above 50% before the epidemic, was 44% in the first quarter. Rail freight transport, already declining before the epidemic, was 8% lower year-on-year in the first quarter and 15% lower than in the same quarter of 2019.
Prices of dwellings continued to rise slightly in the first quarter, while the volume of sales continued to decline. Prices rose by 1.6% compared to the last quarter of last year and by 8.8% compared to the first quarter of 2022. The still high year-on-year growth was mainly due to higher prices of existing dwellings (by 9.1%), where the number of transactions was almost a quarter lower year-on-year and the lowest since the first quarter of 2021. Prices of newly built dwellings were also higher year-on-year (by 5%), though 8.4% lower than in the last quarter of 2022. The number of transactions, which make up only a small part of total sales (3%), also fell sharply year-on-year (by more than one-third).
The number of registered unemployed was at an all-time low in June. According to original data, 46,178 people were unemployed at the end of June, 2.1% fewer than at the end of May and 14.3% fewer than a year earlier. According to seasonally adjusted data, the monthly decrease (by 0.7%) was slightly lower than in previous months but still relatively high. Amid severe labour shortages, the number of long-term unemployed fell by one-quarter year-on-year at the end of June and the number of unemployed people over 50 by 14.5%.
The average gross wage fell by 0.4% year-on-year in real terms in April. In the private sector, the average gross wage fell by 1.4% in real terms year-on-year. Growth was still strongest in accommodation and food service activities, which is facing a severe labour shortage. Gross wages in the public sector increased by 1.6% year-on-year in real terms, mainly due to the last year’s agreement on wage increases. Compared to April last year, the average gross wage increased by 9% in nominal terms – by 11.1% in the public sector and by 7.8% in the private sector. In the first four months, the average year-on-year gross wage growth was modest in real terms – 0.2% (0.3% in the private sector and 0.1% in the public sector).
Year-on-year growth in consumer prices slowed significantly in June, as expected, despite the higher VAT rate on certain energy products. At 6.9%, it was 1.5 p.p. lower than in May and the lowest since April last year. The year-on-year decline in inflation was mainly due to a much lower increase in the prices of housing, water, electricity, and gas and other fuels, on a higher base due to the expiry last year of the measure introducing an exemption from the payment of certain levies and charges on electricity, although the VAT on energy returned to its previous higher rate. Year-on-year growth in food prices was still relatively high at 12.1%, but it has gradually moderated (it was 14.7% in May). Year-on-year growth in prices of goods and services in the health sector has accelerated sharply in recent months and at 13.3% was the highest among all 12 CPI groups of goods and services. Broad-based year-on-year growth in services prices remains slightly below 8.5%. It is driven by higher prices in the groups recreation and culture, restaurants and hotels, and other services. Amid a slowdown in household spending, minor supply chain disruptions and stable commodity market conditions, the growth in durable goods prices has moderated, to 3.5% year-on-year in June. The growth of semi-durable goods prices remained broadly unchanged (5.7%).
Slovenian industrial producer prices fell on average month-on-month in May for the second month in a row (by 0.4%). The prices of intermediate goods and energy decreased, while prices of consumer goods increased slightly, due to rising prices of durable goods. Compared to the previous month, prices were lower in both domestic and foreign markets. Year-on-year price growth moderated significantly in May to 6.6% (9.9% in April), the lowest level since July 2021. The higher base contributed significantly to the lower growth. Due to strong growth in the second half of last year and at the beginning of this year, energy prices still recorded the strongest year-on-year increase, rising by about one-fifth in May. Consumer goods prices rose by about a tenth, while prices of intermediate goods and capital goods increased by 3.2% and 5.5% respectively.
The year-on-year growth in the volume of loans to domestic non-banking sectors further moderated slightly in May (1.9%). The volume of corporate and NFI loans increased by only 0.3% year-on-year amid a slowdown in growth of economic activity and further tightening of borrowing conditions. Growth in loans to households is also slowing (4.9%), especially due to lower borrowing in the form of new housing loans. Year-on-year growth in other household loans (i.e. overdrafts) was still relatively high in May (7%) but is slowing as household spending weakens. However, consumer credit growth continues to increase (4.3%). Year-on-year growth in domestic non-banking sector deposits slowed slightly again in May (to 4.8%), and year-on-year growth in household deposits with banks also weakened (5.2%). As interest rates on long-term deposits have risen somewhat more than those on short-term deposits, the volume of long-term deposits has increased in recent months (by 16.5% year-on-year in May), but it still accounts for only about 5% of total household deposits with banks. The quality of banks’ assets remains solid and the share of non-performing loans fell to 1% in April.
After rising since the end of 2021, yields to maturity of euro area government bonds fluctuated in the second quarter of this year. The yield to maturity of the Slovenian bond fell to 3.28% in the second quarter (from 3.48% in the first quarter). The spread to the German bond fell quarter-on-quarter for the second time in a row, by 23 basis points (to 91 basis points).
The 12-month current account surplus was higher than in the previous 12-month period, amounting to EUR 1,178.7 million (1.8% of estimated GDP). The year-on-year higher surplus arose mainly from a higher surplus in trade in services, especially in trade in transport and travel services and in trade in telecommunications, computer and information services. The 12-month goods deficit was also lower year-on-year, due to the improvement in the balance of trade in goods this year, which was mainly due to a decline in imports. Net outflows of primary and secondary income were higher year-on-year. The primary income deficit was higher mainly due to higher income payments to foreign employees working in Slovenia, while the secondary income deficit was due to higher payments to the EU budget from VAT and gross national income and higher pension payments to pensioners abroad.
In the first five months of this year, the deficit of the consolidated balance of public finances was higher year-on-year. It totalled EUR 172 million, compared with EUR 58 million in the same period last year. Revenues increased by 2.3% year-on-year (last year they increased by 12.7% due to a stronger recovery and one-off income). Otherwise moderate revenue growth was mainly driven by the growth in social contributions in the context of continuing employment growth and accelerated wage growth. Growth in excise revenue has also accelerated significantly this year, due to higher excise duties on energy and tobacco products. Revenue from corporate income tax declined due to lower balancing payments of tax this year. Amid reductions in certain other tax burdens to mitigate the impact of the energy crisis (VAT and environmental tax on CO2 emissions) and legislative changes in personal income tax and moderation of growth in private consumption, the growth in revenue slowed, especially in VAT revenue. EU funds received were considerably lower, despite the payment on the basis of the first request for a grant from the RRP and certain capital and transferred revenues. Revenues increased by 3.5% year-on-year, while they decreased by 1.2% in the same period last year. The main reason for the increase this year was the rise in wages and other remunerations affected by the agreement on wage increases in the public sector. Various transfers (subsidies and transfers to individuals and households) were also higher year-on-year, as some COVID-19 measures had already been lifted this time last year and because of measures to mitigate the consequences of rising energy prices. The growth of capital expenditure (33.6% in the same period last year) slowed (11.7%) but still remained high. With the withdrawal of the measures, expenditure on measures to mitigate the consequences of COVID-19 amounted to EUR 103.3 million in the first five months of this year (compared to EUR 425.4 million in the same period last year), while expenditure to mitigate the effects of rising prices amounted to EUR 199.3 million. The latter includes mainly subsidies to the economy (EUR 124.6 million).
Slovenia’s net budgetary position against the EU budget was positive in the first five months of 2023 (at EUR 167.1 million). In this period, Slovenia received EUR 441.1 million from the EU budget (30.3% of receipts envisaged in the state budget for 2023) and paid EUR 274.8 million into it (37.5% of planned payments). The bulk of receipts were resources under the Common Agricultural and Fisheries Policy (38.2% of all reimbursements to the state budget, 50.1% of the planned reimbursements in 2023) and resources from structural funds (32.6% of all reimbursements, 38.2% of the planned reimbursements). Reimbursements from the Cohesion Fund amounted to 14.6% of all reimbursements (24.1% of the planned reimbursements). In April, Slovenia received EUR 50 million based on its first payment request for a grant from the Recovery and Resilience Facility (13% of the planned amount). The highest payments into the EU budget came from GNI-based payments (53.1% of all payments).
According to the MKRR, by the end of June, funding decisions taken accounted for 115% of the allocated funds under the 2014–2020 MFF (ECP 2014–2020 – 116%, React-EU – 105%) and disbursements for 89% of the allocated funds (ECP 2014–2020 – 93%, React-EU – 42%).