Growth in economic activity is slowing in most segments as we enter the final quarter of this year; the downward trend in economic sentiment stopped in November. Growth in the export-oriented sectors is slowing, real exports of goods to EU Member States declined in current terms in October, while the volume of production slowed or remained unchanged in most manufacturing activities, with the exception of high-technology activities. Household expenditure was somewhat lower than in previous months, especially in trade, and, according to preliminary SURS data, turnover fell in real terms in most trade sectors. In September, real turnover in most market services and the value of construction put in place also fell slightly. The downward trend in economic sentiment stopped in November and confidence indicators rose in all segments. However, the value of the economic sentiment indicator remains significantly lower than a year ago, mainly due to lower confidence in manufacturing and among consumers. According to the preliminary data, consumption of natural gas in Slovenia from August to the beginning of December was 15% below the comparable average of the last five years, which is in line with EU recommendations, while electricity consumption in November was 6% lower year-on-year. The lower consumption was due to favourable weather conditions in October, but also measures to reduce gas consumption and the reaction of industry to high gas and electricity prices by reducing production output and thus consumption.

Electricity consumption was 6% lower year-on-year in November. In our estimation, both industrial and household consumption were lower. Due to high electricity prices, in energy-intensive industry in particular production volume has been reduced and energy efficiency has possibly improved. The lower household consumption compared to last year is most likely due to fewer people working from home. Compared to last November, consumption was also lower in our main trading partners (-3% in Austria and Croatia, -6% in Germany and -8% in France and Italy).

In November, electricity consumption in the distribution network was lower year-on-year in all consumption groups, as it has been for several months now. The strongest decrease was recorded in industrial consumption (by 8%). According to our estimate, this was mainly due to the lower consumption by some energy-intensive companies, which reduced their production volume under the impact of high electricity prices and may have adapted their production processes and introduced modern technologies to increase their energy efficiency. Household consumption was also lower year-on-year in November (by 4.2%), most likely due to more rational consumption of energy and fewer people working from home. The decline in small business consumption was much less pronounced, as it was 0.9% lower in November than a year ago.

Natural gas consumption in November was slightly more than 10% lower than the comparable average consumption over the last five years, after being slightly more than 20% lower in October given the warm weather. Consumption was lower due to various measures taken by EU Member States to reduce gas consumption, while part of industry reacted to high gas prices by reducing production output and thus gas consumption. After the above-average warm weather additionally contributed to lower consumption in the second half of October, temperatures in November were more comparable to the long-term average and thus the gap to the comparable gas consumption of previous years also narrowed. Before winter, EU Member States managed to almost completely fill their gas storage capacities, exceeding the target of having the capacities at least 80% full. According to preliminary data, gas consumption in Slovenia from 1 August to 1 December 2022 was about 15% lower than the comparable average consumption over the last five years, which is in line with EU recommendations.

Amid high price growth, the value of fiscally verified invoices in November was higher in nominal terms both year-on-year and compared to the same period of 2019 (by 15% and by 21% respectively). Year-on-year growth was highest since June 2022. The stronger growth was mainly the result of last year’s lower base, as COVID-19 containment measures were tightened last November. Thus (compared to growth in October), nominal turnover growth in accommodation and food service activities doubled year-on-year (to 26%; in food and beverage service activities it was 35% and in accommodation establishments 7%). Nominal growth was also high in sports, cultural, entertainment and personal services (23%). Growth in trade was also higher than in the previous month (15%), with the highest growth in wholesale trade.

Real exports of goods to EU Member States fell for the second month in a row, while imports remained roughly constant. Amid a high level of uncertainty in Slovenia’s main trading partners, there have been significant monthly fluctuations in exports and especially imports of goods in recent months, suggesting that the monthly growth in trade in goods has slowed (seasonally adjusted). In the first ten months, exports to EU Member States rose by 6.4% year-on-year and imports by 2.7%. Sentiment in export-oriented activities improved somewhat in November but deteriorated significantly compared to the beginning of this year.

Trade in services increased in the third quarter compared to the previous quarter (seasonally adjusted). The favourable quarterly trends continued in most of the main service groups and the largest contributor to growth was trade in transportation services (both exports and imports). Among the main services, trade in ICT services and trade in construction services were slightly lower than in the previous quarter and were also lower compared to the same period last year. For several quarters, total trade in services has been noticeably higher than before the start of the epidemic, and since June this year, the services most heavily hit by the containment measures (tourism-related services and personal, cultural and recreational services) have also exceeded comparable pre-crisis levels. 

At the beginning of the last quarter, manufacturing output increased slightly, especially in high-technology activities. In all other industry groups, production was lower or similar to the previous month. In the first ten months, their output increased by only slightly more than 2% (in high-technology industries by more than 20%) compared to the same period last year. This was mainly due to lower year-on-year output in the manufacture of motor vehicles (due to supply chain disruptions, lower demand) and in some energy-intensive industries (the paper industry, the manufacture of basic metals and rubber products), and lower activity in the repair and installation of machinery and equipment.

According to figures on the value of construction work put in place, construction activity in September was considerably higher year-on-year. After a strong upturn at the beginning of the year, the value of construction work remained at a high level during the rest of the year and was 26.1% higher in September than a year ago. Compared to previous years, building construction stands out; activity was also high in civil engineering, while it was lower in specialised construction work (installation works and building completion). The implicit deflator of the value of completed construction works (used to measure prices in the construction sector) was 18% in September, which is slightly less than in previous months.
However, VAT data suggest significantly lower construction activity. According to these data, the activity of construction companies in the first nine months was 6% higher than last year. Based on data on the value of construction put in place, the difference in the growth of this activity was 20 p.p.

According to preliminary data, turnover fell in real terms in most trade sectors in October. After stagnating in the third quarter, it declined in the retail sale of non-food products and the retail sale of food, beverages and tobacco. Total turnover in retail trade (excluding automotive fuel) was lower also year-on-year (by 3.1%). According to preliminary SURS data, turnover also remained smaller than a year ago in the sale of motor vehicles, where it fell in October after a surge in the third quarter. The number of new passenger cars sold, which has yet to reach pre-epidemic levels, continued to fall in October and was almost a fifth lower than a year ago. In the third quarter (compared to the second), turnover also declined in wholesale trade, where year-on-year growth also continued to weaken.

Real turnover declined in most market service activities in the third quarter. After growing in the first half of the year, total turnover in market services fell by 0.6% in current terms, while it increased by 5.1% year-on-year. After recording strong growth, turnover in information and communication activities declined the most in current terms, mainly due to a decline in telecommunication services. Turnover declined again in administrative and support service activities, especially in services that are often outsourced by companies. It also declined in transportation and storage, mainly due to a sharper decline in land transport and postal activities. As turnover in architectural and engineering services declined again, a slight decline was also recorded in professional and technical activities. Turnover in accommodation and food service activities increased in the third quarter as the number of overnight stays continued to rise.

At the beginning of the fourth quarter, household expenditure, especially in trade, was somewhat lower than in previous months. According to preliminary SURS data, expenditure on non-food products decreased in October, with expenditure on durable goods decreasing in recent months. Sales of new passenger cars continued to decline, falling far short of sales in the previous year (by a quarter) and pre-epidemic sales (by 40%). Sales of food, beverages and tobacco, which account for about 20% of total household expenditure, were also lower. After the deadline for the redemption of vouchers expired in June, the number of overnight stays by domestic tourists also declined in the following months, and consequently also expenditure on tourist services in the domestic market, while expenditure on tourist services abroad increased compared to the previous year.

The downward trend in economic sentiment stopped in November. Confidence increased month-on-month in most activities and was also higher among consumers. We assume that this is partly related to lower uncertainty regarding the supply of energy this winter and measures to mitigate rising energy prices. Year-on-year, confidence was higher in retail trade, services and construction, while confidence was still significantly lower in manufacturing and among consumers. In manufacturing, this is related to the current situation in the international environment (high prices of intermediate goods and energy, uncertainty about economic growth in Slovenia’s main trading partners), while lower confidence among consumers is related to the decline in purchasing power due to high prices.

As the number of people in employment reached a record high, year-on-year growth in September was 2.2%, slightly lower than in previous months. It remained high in construction, which faces major labour shortages. The employment of foreign workers has recently been increasingly contributing to overall growth in the number of people in employment – in September, foreign workers contributed 76% to year-on-year employment growth. Consequently, the share of foreign nationals among all persons in employment is also increasing, up 1.4 p.p. to 13.7% in the last year. Activities with the largest share of foreign workers are construction (47%), transportation and storage (32%) and administrative and support service activities (26%). In the first nine months, the number of people in employment rose by an average of 2.7% year-on-year.

According to the seasonally adjusted data, the monthly decline in the number of registered unemployed was slightly larger in November than in the previous four months (-1.6%). According to original data, 52,541 people were unemployed at the end of November, 0.8% less than at the end of October. Unemployment was down 19.6% year-on-year. Under conditions of high demand for labour, which is also reflected in the high vacancy rate, the number of long-term unemployed has also been declining since May last year – the number thereof was almost one third lower year-on-year in November. The number of unemployed people over 50, who are often long-term unemployed, is also declining – in November, the number thereof was one fifth lower than a year ago.

According to the survey data, unemployment fell year-on-year in the third quarter, while the number of persons in employment remained roughly unchanged. According to original data, 42 thousand persons were unemployed, which is 10.6% less than in the third quarter of last year. The survey unemployment rate fell by 0.5 p.p. year-on-year, to 4%. In our view, the decline in the number of unemployed mainly reflects people’s transition into inactivity, which is normal in times of economic contraction. Having already been high, the number of persons in employment remained at a similar level as a year ago.

Amid high inflation, the average gross wage fell by 3.5% year-on-year in real terms in September, more in the public sector than in the private sector. In the private sector, the real year-on-year decline (2.9%) was somewhat smaller than in the previous months. It was lowest in transportation and storage and in administrative and support service activities, which are facing major labour shortages. In the public sector, however, the year-on-year decline in real terms (4.5%) was significantly smaller than in previous months, which is related to the year-on-year effect of the cessation of the payment of most COVID-19 bonuses in July last year. The decline was smallest in health and social work activities, where wages were raised in December 2021 to address labour shortages. Compared to September last year, gross wage increased by 6.1% in nominal terms, by 5% in the public sector and by 6.8% in the private sector.

Year-on-year consumer price growth has been relatively stable at around 10% over the past three months and slightly lower than in the summer months. In November, the rise in prices of food and non-alcoholic beverages, which were already 19% higher year-on-year and contributed the most to headline inflation (3.1 p.p.), strengthened further. Energy prices also rose at a similar rate and their contribution to inflation was 2.3 p.p. The growth in solid fuel prices, which were already almost 130% higher year-on-year, continued to strengthen. At the current growth, year-on-year growth in oil derivatives prices also strengthened (from 15% in October to about 19%). Heat energy prices fell by around 8.5% year-on-year, given the monthly drop in prices. The slowdown in economic activity, supply chain problems and cost pressures in commodity markets are also contributing to the gradual deceleration in the growth of durable goods prices, which was 8.4%. Growth in non-durable goods prices (3.6%) remained relatively modest. The year-on-year increase in service prices remained slightly below 6% in November. Inflation was mainly driven by prices of accommodation and food service activities, which were more than a tenth higher, while the highest price increase (64.2%) was recorded in air transport. 

After almost two years of continuous growth, Slovenian industrial producer prices remained unchanged month-on-month in October, while year-on-year growth remains high (20.6%), although it fell slightly in the last month. Amid the slowdown in economic activity, this was mainly due to the gradual slowdown in the year-on-year increase in the prices of intermediate goods (20.9%) and capital goods (10%). Growth in the prices of energy (96.4%) and consumer goods (13.5%) was slightly more pronounced. On domestic markets, the year-on-year price increase since May this year has been around 25%. On the foreign markets, the price increase has weakened more notably in this period and was 16% year-on-year in October.

The year-on-year growth in the volume of bank loans to domestic non-banking sectors decelerated to 10.7% in October (from 12% in September). Growth in corporate and NFI loans continued to weaken, but year-on-year growth in loans was still relatively high (15.1%). The growth in household loans remained at slightly above 8%. Growth in housing loans, which was 11% year-on-year, has gradually slowed. In recent months, however, new borrowing in the form of consumer loans has increased somewhat, which we also associate with the partial easing of credit conditions at the beginning of the second half of the year. Consumer loans were thus higher year-on-year for the first time since May 2020, but the growth was minimal (0.1%). After slowing in the first half of the year, the year-on-year growth in domestic non-banking sector deposits picked up again slightly in recent months and was 7.8% in October. In particular, growth in deposits by non-financial corporations has been increasing, which we believe it is a consequence of creating liquidity reserves as economic activity slows and eliminated fees on deposits with commercial banks. Deposits of non-financial corporations were thus already 12.0% higher year-on-year in October. Growth in household deposits remained slightly above 5%. The quality of banks’ assets remained solid and the share of non-performing loans was slightly above 1%.

After a deficit in the first half of the year, the current account balance recorded a surplus again in the third quarter; the terms of trade deteriorated for the seventh consecutive quarter. The surplus amounted to EUR 304.7 million and was significantly lower compared to the same quarter last year (EUR 559.5 million). This was mainly due to trade in goods, as the real increase in imports of goods was higher than that in exports, given the deteriorating terms of trade. The terms of trade deteriorated year-on-year in the third quarter by 1.9%, which is less than in previous quarters, and contributed about one fifth to the change in the nominal trade balance (by EUR 443 million). The services surplus was higher than a year ago, especially in travel and transportation services. Net outflows of primary and secondary income were higher than a year ago. The primary income deficit was higher year-on-year in the third quarter due to larger payments of income on equity, direct investments and more customs duties paid to the EU budget due to the import of electric vehicles for the EU market (via the port of Koper), while the secondary income deficit was higher due to higher private sector transfers abroad. In the first nine months of this year, the current account was close to being balanced (a deficit of EUR 4 million).

In the first ten months of 2022, the deficit of the consolidated general government budgetary accounts amounted to EUR 375.5 million, which is a significant decline compared to the same period of 2021 (EUR 1.9 billion). In the first ten months of the year, revenue increased by 10.6% year-on-year. This is slightly lower year-on-year growth than in the first ten months of last year (13.8%), reflecting the slowdown in economic activity, the reduction of some tax burdens (VAT and excise duty on energy, the personal income tax) and the absence of one-off inflows from the sale of concessions last year, and a lower inflow of profits and dividends from state-owned enterprises. Receipts from the EU budget increased significantly. Expenditure in the first ten months of the year increased by 1.4% year-on-year, which is significantly less than last year (9.7%) due to lower expenditure on civil servants’ wages, transfers to individuals and households, and subsidies related to mitigating the consequences of COVID-19 (in total, this expenditure decreased from EUR 2.4 billion to EUR 0.7 billion). Expenditure on goods and services, capital formation and payments to the EU budget increased year-on-year. In the last two months of the year, we expect the government budget deficit to increase, in particular due to the further strengthening of expenditure growth, as a result of higher investments and payments for measures to mitigate the effects of inflation and the increase in public sector wages. Nevertheless, based on the implementation so far, there are indications that the deficit of the state budget and the consolidated balance of public finances for 2022 will be lower than envisaged in the revised state budget (EUR 2 billion). 

Slovenia’s net budgetary position against the EU budget was positive in the first ten months of 2022 (at EUR 162.5 million). In this period, Slovenia received EUR 751.9 million from the EU budget (63.2% of receipts envisaged in the state budget for 2022) and paid EUR 589.4 million into it (82.5% of planned payments). Receipts from the EU budget increased in recent months. The bulk of receipts were resources from structural funds (43.7% of all reimbursements to the state budget) and resources for the implementation of the Common Agricultural and Fisheries Policy (30.1%). The share of resources from the EU Cohesion Fund was significantly smaller (8.7%). The second instalment of the advance payment for the implementation of RRP was paid into the state budget from the Recovery and Resilience Facility. According to SVRK data, by the end of November 2022, Slovenia had absorbed (payments to beneficiaries) 73% of the funds available under the 2014–2020 financial perspective (including React-EU).