.^'IMAD O fü Q) £ u £ o o Ü) X X o o fN to u| 13 O Slovenian Economic Mirror ISSN 1318-3826 No. 7-8 / Vol. XX / 2014 Publisher: IMAD, Ljubljana, Gregorčičeva 27 Responsible Person: Boštjan Vasle, MSc, Director Editor in Chief: Matevž Hribernik Authors of Current Economic Trends (listed alphabetically): Jure Brložnik, Urška Brodar, Gonzalo Caprirolo, MSc, Janez Dodič, Marjan Hafner, MSc, Matevž Hribernik; Slavica Jurančič, Mojca Koprivnikar Šušteršič, Tanja Kosi Antolič, PhD, Janez Kušar, Jože Markič, PhD, Tina Nenadič, MSc, Mitja Perko, MSc, Jure Povšnar, Ana T. Selan, MSc, Dragica Šuc, MSc Authors of Selected Topics: Helena Mervic (Social protection expenditure in 2012); Valerija Korošec, PhD (Human Development Index; Life satisfaction); Mateja Kovač, MSc (Structural changes in Slovenia's agriculture in 2000-2013). Editorial Board: Marijana Bednaš, MSc, Lejla Fajič , Alenka Kajzer, PhD, Rotija Kmet Zupančič, MSc, Janez Kušar, Boštjan Vasle, MSc Translator: Marija Kavčič Data Preparation and Graphs: Bibijana Cirman Naglič, Marjeta Žigman Concept and Design: Katja Korinšek, Pristop DTP: Bibijana Cirman Naglič Print: SURS Circulation: 80 copies © The contents of this publication may be reproduced in whole or in part provided that the source is acknowledged. Contents In the spotlight................................................................................................................................................................3 Current economic trends..............................................................................................................................................5 International environment...............................................................................................................................................7 Economic developments in Slovenia.............................................................................................................................9 Labour market..................................................................................................................................................................13 Prices..................................................................................................................................................................................15 Balance of payments.......................................................................................................................................................17 Financial markets.............................................................................................................................................................19 Public finance....................................................................................................................................................................21 Boxes Box 1: Gross domestic product, Q2 2014.....................................................................................................................10 Box 2: Road and rail freight transport, Q1 2014................................................................................................................12 Selected topics Social protection expenditure in 2012........................................................................................................................27 Human Development Index...........................................................................................................................................28 Life satisfaction.................................................................................................................................................................31 Structural changes in Slovenia's agriculture in 2000-2013.....................................................................................33 Statistical appendix.....................................................................................................................................................35 The Economic Mirror is prepared based on statistical data available by 4 September 2014. On January 2008, the new classification of activities of business entities NACE Rev.2, which replaced NACE Rev. 1.1, came into force in all EU Member States. In the Republic of Slovenia, the national version of the standard classification, SKD 2008, which includes the entire European classification of activities but also adds some national subclasses, came into force on the mentioned date. In the Slovenian Economic Mirror, all analyses are based on the SKD 2008, except when the previous SKD 2002 classification is explicitly referred to. More general information about the introduction of the new classification is available on the SURS website http://www.stat.si/eng/ skd nace 2008.asp. All seasonally adjusted data in the Economic Mirror are calculations by IMAD. In the spotlight Economic growth in the euro area stagnated in the second quarter and was lower than expected by international institutions; the indicators for the second half of the year indicate a slowdown. A fter a year of weak growth, euro area GDP stagnated in the second quarter (seasonally adjusted), being up 0.7% year-on-year. In all Slovenia's main partners (particularly Germany, Italy and France), growth was lower than the spring expectations of the European Commission. The latest confidence indicators show a continuation of low economic activity in the euro area in the next quarter. At the beginning of September, the ECB lowered slightly its forecast for economic growth in the euro area, projecting euro area GDP to increase by 0.9%. Amid further growth in exports and construction investment related to EU funds, Slovenia's GDP was up 2.9% year-on-year in the second quarter (up 1.0% relative to the previous quarter, seasonally adjusted). The contribution of net exports was positive again, primarily on account of the continuation of relatively high year-on-year growth in exports (5.2%). The second quarter saw further growth in domestic consumption, and, as a result, higher activity in sectors that are mainly oriented to the domestic market. This holds particularly true for value added in construction (19.0%), which can be explained by government investment related to EU funds. Most market services also show signs of improvement. Household consumption was also slightly higher year-on-year (0.2%). This is related to the weak recovery on the labour market, which is reflected in higher employment and earnings. Consumer confidence has also improved. Given the fiscal consolidation measures, government consumption continued to fall (-1.9%). Value added in public services was thus lower than a year earlier. The labour market situation improved slightly again in the second quarter. Having grown since the second half of 2013, the number of persons in employment increased by 0.5% in the second quarter (seasonally adjusted), being almost 1% higher year-on-year. The increase in employment was recorded particularly in individual sectors of market services, notably employment activities, and in public services. The surge of employment in employment activities could be attributable to stronger activity in the construction and manufacturing sectors. The number of registered unemployed persons has been declining since March 2014, a significant fall being recorded in August (seasonally adjusted), with 114,784 persons registered as unemployed at the end of the month, 1.6% fewer than in the same month of 2013. Gross earnings in the private sector increased further in the second quarter. For the first time in two years, this year gross earnings also rose in the public sector. A more visible increase was also seen in the general government sector (especially due to the disbursement of the suspended promotions in April), in addition to public corporations. In August, prices remained unchanged relative to July, but were down relative to the previous August. The year-on-year decline was mainly due to lower prices of unprocessed food and energy; prices of durable goods also remained lower than in the same period last year. Price growth was also low in the euro area, which recorded the lowest year-on-year inflation in the last five years (0.3%), according to Eurostat's flash estimate. In July, the deleveraging of non-banking sectors eased slightly in comparison with that in June; in the first seven months, it was slightly lower than in the same period last year. In the first seven months of the year, the volume of loans to domestic non-banking sectors declined by around EUR 1 bn, which is around 15% less than in the same period last year. The decline was largely due to lower household and government repayments, while corporate and NFI deleveraging did not differ significantly from last year's level owing to the substantial debt repayments in June and July. Banks continued to deleverage abroad and reduce their liabilities to the Eurosystem. The volume of household and government deposits is growing. The deterioration in the quality of banks' assets remains one of the main risks to the banking system. The share of arrears of more than 90 days rose by almost 2 percentage points to 15.3% in the first half of the year, while the share of all arrears has been fluctuating around 18% in recent months. According to the data of the consolidated balance, the deficit of the general government sector in the first six months of this year amounted to EUR 709.6 m, which is less than in the same period last year (EUR 1.2 m). Despite the lower general government deficit year-on-year, a larger part of the yearly deficit envisaged in the adopted state budget has already been realised. The decline was mainly the result of higher general government revenue (by EUR 622 m or 9.9%). Year-on-year growth was recorded both in tax (corporate income tax and value added tax) and non-tax revenues (a one-off inflow from concessions). General government expenditure was up EUR 98.3 m year-on-year (by 1.2%), most notably expenditure on investment and interest payments. ■o £ Ol E o £ 0 u 01 £ 01 3 U International environment Economic growth in the euro area stagnated in the second quarter and was lower than expected by international institutions. In the second quarter, euro area GDP stagnated (seasonally adjusted), being up 0.7% year-on-year. Economic growth was below the spring expectations of the European Commission in most of Slovenia's main trading partners, particularly Germany, Italy and France. A significant factor behind the GDP fall in Germany was, in addition to foreign demand, lower investment in the construction sector due to the mild winter leading to high growth rates in the first quarter of this year. Figure 1: Quarterly growth rates in selected EU countries, 2014 Q3 13 ■Q4 13 ■Q1 14 ■Q2 14 -Q2 14 EC forecast Figure 2: Economic sentiment in the euro area EMU Germany France Italy Austria Source: Eurostat, EC forecast (May 2014). Confidence indicators for the euro area indicate weak growth in the second half of the year. According to the confidence indicators (PMI, ESI, Ifo), low economic activity in the euro area will continue in the next quarter. The Economic Sentiment Indicator (ESI) for the euro area dropped to this year's low in August, recording a decline in all sectors. The ECB lowered slightly its forecast for euro area economic growth at the beginning of September (2014: 0.9%, 2015: 1.6%). 20 10 -S-10 ;-20 -30 -Industry ■ Services ■ Consumers - Retail trade -Construction -ESI for the euro area (right axis) K" -40 120 110 100 90 "S 80 70 60 cococ^o^oo^^rNrNmm^^ c^ c^ c^ c^ c^ c^ c^ Source: European Commission. In the second quarter, credit standards for enterprises and households in the euro area improved and the demand for loans increased. According to the ECB Euro Area Bank Lending Survey,1 credit standards for loans to enterprises eased in the second quarter for the first time since 2007. The main factors in the easing were improved expectations of banks regarding the recovery in individual sectors and lower risks in the euro area. Enterprises increased demand in particular for loans for investment, inventories and working capital. Banks also reported an easing of credit standards across all categories of household loans. Owing to higher consumer confidence and favourable prospects on the housing market, there was a significant increase in demand for household loans. In the next quarter, banks expect a further easing of credit standards and an increase in demand for loans to enterprises and households. Despite the improvement in credit standards for enterprises and households, the net flow of loans in the euro area remains negative. 1 The survey included 137 banks in the euro area. Table 1: Money market interest rates and the exchange rates of national currencies against the EUR Interest rates average, in % change, in b. p. 2013 VIII 13 VII 14 VIII14 VIII 14/VII 14 VIII 14/VIII 13 3-month EURIBOR rate 0.220 0.226 0.207 0.192 -1.3 -3.4 3-month USD LIBOR rate 0.268 0.264 0.234 0.235 0.1 -2.9 3-month CHF LIBOR rate 0.021 0.018 0.013 0.021 0.8 0.3 Exchange rates average change, in % 2013 VIII 13 VII 14 VIII14 VIII 14/VII 14 VIII14/VIII 13 EUR/USD 1.328 1.331 1.354 1.332 -1.6 0.1 EUR/CHF 1.231 1.234 1.215 1.212 -0.3 -1.8 EUR/GBP 0.849 0.859 0.793 0.797 0.5 -7.2 EUR/JPY 129.66 130.34 137.72 137.11 -0.4 5.2 0 Table 2: Oil and non-energy commodity prices Oil average change, in % 2013 VIII 13 VII 14 VIII14 VIII 14/VII 14 VIII 14/VIII 13 Brent USD 108.56 111.28 106.77 101.61 -4.8 -8.7 Brent EUR 81.66 82.55 79.95 77.57 -3.0 -6.0 Commodities change, in % 2013/2012 VII 14/VI 14 VII 14/VII 13 Non-energy commoditites -1.2 0.1 -2.3 Food 1.1 -2.1 -6.3 Agricultural raw materials 1.4 -0.9 2.4 Metals -4.2 4.3 -2.3 Source: EIA, ECB, IMF, calculations by IMAD. Figure 3: The ECB Euro Area Bank Lending Survey Credit standards for loans to enterprises over the past 3 months (left axis) Credit standards for loans to enterprises over the next 3 months (left axis) Demand for loans to enterprises over the past 3 months (rigth axis) Demand for loans to enterprises over the next 3 months (right axis) 70 n a. <" 70 60 50 = 40 30 iS JŠ 10 CT ^^ 0 (5 1^-10 -20 30 01 ^ 60 CT 40 30 SŠ 20 10 -Sš ^^ ■ 0 ^ . -10:s ^ ■ ;; iE -20 -30!^ IS -40if^ Source: ECB. Figure 4: Yields to maturity of ten-year government bonds - Slovenia -Italy ■ Austria -Portugal -----Ireland - Spain • Germany Figure 5: Prices of Brent crude oil and the USD/EUR exchange rate -Price in EUR(left axis) -Price in USD (left axis) -USD to EUR exchange rate (right axis) 120 ^100 D 60 40 1.6 1.0 0.8 Source: Bloomberg. Source: ECB, EIA; calculations by IMAD. Figure 6: Non-energy commodity prices in dollars -Non-energy commodities -Industrial inputs -----Agricultural raw materials -----Metals 260 —-- Food 240 220 53 200 J^ 180 5? 160 (u -o 140 120 100 80 60 Source: IMF. 140 1.8 1.4 80 1.2 20 In September, the ECB cut its interest rates again to new record lows. The key interest rate and the interest rate on the marginal lending facility were lowered by 10 basis points to 0.05% and 0.30%, respectively. The interest rate on the deposit facility was also reduced by 10 basis points, to minus 0.20%. On the interbank money market, interest rates declined slightly since June's adoption of the ECB's measures to stimulate the recovery of the economy. As stated by the ECB, the monetary policy stance will remain accommodative. In the next few months, banks will be able to borrow funds under the targeted long-term refinancing operations (around EUR 400 bn for the entire euro area), which will be mainly intended to increase lending to the non-financial private sector. Economic developments in Slovenia Real merchandise exports were up 5.4% and imports up 2.2% year-on-year in the second quarter.2 Export growth in the second quarter was, as in the first quarter, underpinned by higher exports to the EU; relative to the previous quarter (seasonally adjusted), this year's growth rates are much more moderate than last year's. Exports to Croatia, Germany and Austria rose in particular year-on-year in the second quarter, with higher exports to Switzerland, USA and Hungary also contributing to total growth. Looking at the main trading partners, exports to Russia, France and the Czech Republic were down this year. Real merchandise imports rose in the second quarter, after maintaining similar levels since the beginning of last year (seasonally adjusted). According to our estimate, imports of consumer goods rose in particular, once again especially imports of passenger cars.3 In the second quarter, nominal exports of services rose, while imports declined. In year-on-year terms, exports were Table 3: Selected monthly indicators of economic activity in Slovenia Figure 7: Merchandise exports - geographical distribution in % 2013 VI 14/ V 14 VI 14/ VI 13 I-VI 14/ I-VI 13 Exports1 2.5 4.7 6.9 4.5 -goods 1.8 6.0 8.0 5.2 -services 5.6 -0.5 2.5 1.5 Imports1 -1.5 -2.2 6.6 4.3 -goods -1.9 -3.3 5.7 2.9 -services 1.4 4.8 12.1 14.3 Industrial production -0.9 1.02 4.33 2.73 -manufacturing -1.5 1.72 3.73 2.13 Construction -value of construction put in place -2.6 -0.32 28.63 37.53 Real turnover in retail trade -3.7 0.12 -2.63 -0.93 Nominal turnover in market services (without trade) -0.3 -0.92 -0.33 2.73 Sources: BS, Eurostat, SURS; calculations by IMAD. Notes: 1balance of payments statistics, 2seasonally adjusted, 3working-day adjusted data. 125 120 115 110 100 95 90 85 80 75 Outside the EU a a a a a Source: SURS, calculations by IMAD. Figure 8: Trade in services - nominal -Exports of services -Imports of services 1,500 1,400 1,300 1,200 1,100 1,000 800 700 a a a a Source: BS; calculations by IMAD. up 4.8%; imports were up 13.0% owing to strong growth in the previous three quarters.4 Exports of transport and travel services continued to grow. Exports of other business services were also up; the largest increase was recorded for exports of other services,5 particularly communication services, according to our estimate. Imports of services declined in the second quarter, chiefly on account of lower imports of travel. Production volume in manufacturing rose again in the second quarter, largely on account of the strong growth in June. Growth was contributed by low- and medium- 2 According to the National Accounts Statistics. 3 An estimate based on the available data on the structure of merchandise trade for the first five months of this year. 4 According to the balance of payments statistics. 5 When adjusting data for seasonal effects, we placed communication, construction, financial, computer and information activities, personal service activities, arts, entertainment and recreation activities, government services, insurances and licences, patents and copyrights into the group of other services. Together, they account for almost a fifth of services exports and nearly a third of services imports. 105 900 Box 1: Gross domestic product, Q2 2014 Figure 9: Expenditure structure of the year-on-year change in GDP, Slovenia Private consumption Government consumption Gross fixed capital formation Hmii Changes in inventories and valuables Exports of goods and services Imports of goods and services Real GDP growth (right axis) In the second quarter, GDP was up 2.9% amid further growth in exports and construction investment related to EU funds. It rose by 1.0% relative to the previous quarter (seasonally adjusted). The continuation of the relatively high year-on-year growth of exports (5.2%) can be attributed to higher exports to the EU. Owing to these developments, the year-on-year growth of value added in manufacturing strengthened further. Year-on-year growth in imports continued as well, with imports of services rising substantially this year. The contribution of net exports was positive again (1.6 percentage points). In the second quarter, domestic consumption was up again, particularly investment in construction; value added in the construction sector increased by 19.0%, which is largely related to EU funds, according to our estimate. Unlike construction investment, investment in machinery and equipment was down again relative to the same period of the previous year. Household consumption rose slightly in year-on-year terms, which can be explained by the otherwise weak recovery on the labour market and, in turn, higher employment and wages. Consumer confidence also improved. Reflecting higher domestic demand, value added was up year-on-year in most market services that are predominantly oriented to the domestic market (with the exception of real estate and financial and insurance activities). Given the need for fiscal consolidation, government consumption continued to fall (-1.9%). Value added in public services was thus also lower than a year earlier. The indicators of exports and construction investment, which boosted GDP growth in the first half of the year (2.5% relative to the same period last year), indicate a gradual slowdown. GDP growth can therefore be expected to decline in the second half of the year. o o Source: SURS. ä o -2 low-technology industries, where production volume is steadily rising after the decline until the end of 2012. After stagnating in the previous quarter, production volume dropped slightly in industries of higher technology intensity, where it has been fluctuating slightly below the 2008 levels in the last two years. Production levels of more technology-intensive industries in the EU are also similar, Figure 10: Production volume in manufacturing in EU Member States 130 120 t^ 90 80 70 Üu Source:Eurostat; calculations by IMAD.Note: data for Q2 2014 for 2 months. on average, to those in 2008. The wider gap with the 2008 production levels in Slovenia than in the EU is accounted for by some low- and medium-low-technology industries, primarily those making furniture, textile and leather products. In the first half of the year, production volume in the furniture and textile industries remained lower than in the same period last year (by around 5%). In most other industries it was higher year-on-year. Production in industries of higher technology intensity was up 1.4%, on average; in low- and medium-low-technology industries up 3.9%. Construction activity picked up again in the second quarter. The value of construction put in place rose by 5.5% (seasonally adjusted). With ongoing growth, Q2 activity was as much as 38.1% higher year-on-year. Activity in the construction of buildings rose slightly in the second quarter. After vigorous growth in preceding quarters, activity in the construction of civil-engineering structures remained at the level of the previous quarter (which was still 50% higher than in the second quarter of 2013). The relatively strong activity in civil engineering is linked to the completion of projects (municipal infrastructure in particular) co-financed by EU funds at the end of the financial perspective. At the end of June, the stock of contracts in the construction sector was, after increasing substantially in 2013 (by 35.5%), 10.3% lower than at the end of 2013. In civil engineering the stock of contracts remained unchanged this year, while it declined in residential and non-residential construction, 100 60 50 Figure 11: Value of construction put in place, seasonally adjusted Figure 13: Turnover in trade sectors 140 120 60 40 20 - Construction - Residential buildings Civil-engineering structures - Non-residential buildings O O O O c^ C? Source: SURS; calculations by IMAD. Figure 12: Total floor area of buildings planned by issued building permits in the last four quarters 2,800,000 2,400,000 400,000 where it was also lower than in the same period last year. Data on issued building permits show a similarly unfavourable picture regarding the future activity: in both the final quarter of 2013 and the first two quarters of 2014, the total floor area for buildings planned by issued building permits was significantly lower than in the same period of 2013. Turnover in wholesale and retail trade is stagnating this year, while turnover in the sale of motor vehicles is slowly growing (seasonally adjusted). In retail trade, turnover has been hovering - with small monthly fluctuations - at the lowest level since 2008 for the entire year. In 2014, last year's growth in wholesale trade came to a halt, turnover in the second quarter thus being similar to that at the end of 2013. In the sale and repair of motor vehicles, last year's 105 - Retail trade, real - Sale and repair of motor vehicles, real -Wholesale trade, nom. 90 j 85 70 a a a a a a a Source: SURS; calculations by IMAD. growth continued in the second quarter. Relative to last year, turnover increased only in wholesale trade. In the first half of the year as a whole, it was also up year-on-year in the sale of motor vehicles due to its strong growth in the first quarter. In the second quarter, turnover in retail trade dropped in all three sectors (seasonally adjusted), remaining higher year-on-year only in automotive fuel. The decline of turnover in the sale of food, beverages in tobacco products, which came to a halt in the previous two quarters, continued. Turnover in non-food products remained at similarly low levels as in the last year and a half.6 The sales of household appliances, audio and video recordings and computer and telecommunication devices, books and sports equipment increased significantly for the second quarter Figure 14: Turnover in retail trade -Sale of automotive fuel -Sale of food, beverages and tobacco products -----Sale of non-food products 105 100 t 75 70 65 / ■ \ A J .......T-iV J C^ CD rs r^ C? C? Source: SURS; calculations by IMAD. 6 With the exception of the higher sales before last year's increase in VAT rates. 100 100 95 80 80 75 0 in a row, but remained significantly lower than before the crisis. After the fluctuations in the previous two quarters, turnover in the sale of automotive fuel declined somewhat, but remained higher than in the same period of last year, also on account of higher sales of diesel fuel. Nominal turnover in market services (excluding trade)^ rose again in the second quarter of 2014 (seasonally adjusted); it was also higher year-on-year, on account of transport activities, while it remained lower in most other market services. Owing to further growth in the second quarter, turnover in transport services'8 rose the most year-on-year among the main services, being the only turnover to exceed the pre-crisis level (by a tenth). With an increase in overnight stays, turnover in accommodation and food service activities rose again in the second quarter. Turnover in professional and technical services increased the most (2.1%), but was nevertheless the farthest below last year's level (-2.4%) among all market services. Turnover in these services continues to fall slowly (in accounting services) or stagnate (in engineering services) in year-on-year terms. With modest quarterly growth, turnover in administrative and support service activities was also substantially lower year-on-year, with turnover in employment services standing out, exceeding the average 2008 level by more than 25%. In the second quarter, turnover declined only in information and communication services, where it was also down year-in-year, primarily owing to a decline in telecommunication services.9 Figure 15: Nominal turnover in market services (other than trade) 115 12100 90 80 - Total - Transportation and storage (H) ■ Communication activ. (J) ■ Professional, technical activ. (M) - Administrative and support service activities (N) -----Accommodation and food service activities (I) a a a a a a a Source: SURS; calculations by IMAD. 7 Activities from H to N (SCA 2008) subject to the Council Regulation (EC) No. 1165/98 concerning short-term statistics. 8 Turnover in transport services was up 6.3% year-on-year; with exports of transport services (i.e. transport services for a foreign client) increasing even slightly more, by 8.2% (BoS data). 9 In telecommunication services, turnover dropped by 0.6% relative to the same period last year. In contrast to previous trends, turnover of the largest telecommunication services provider, Telekom Slovenije, rose by 2.8% (source: Business Reports of Telekom Slovenije). Box2: Road and rail freight transport, Q1 2014 Owing to the decline in the first quarter of 2014, road freight transport slipped to the average level of the crisis year 2009, while rail freight transport remained half higher than in2009. In the first quarter of this year, the volume of road freight transport fell by 6.8% (seasonally adjusted), slightly more in international than national transport. The year-on-year decline by almost a tenth1 in all types of transport performed by Slovenian carriers was mainly (as much as three quarters) due to a fall in transport abroad (where transport is carried out entirely in foreign countries).2 The volume of international transport performed by Slovenian carriers was also lower year-on-year, by 11.8%, while the volume of goods carried out (exclusively) in Slovenia remained 13.9% higher. The year-on-year increase in national transport was mainly related to higher activity in the construction sector.3 Rail freight transport also dropped somewhat in the first quarter (by 3.5%, seasonally adjusted) but, unlike road freight transport, it remained high, 13.0% higher than in the same period last year. This growth can be explained by a substantial increase in the volume of transport for foreign clients. Figure 16: Road and rail freight transport -Road (left axis) -Rail (right axis) 4,300 4,200 4,100 4,000 ;; 3,900 3,800 i2 3,700 "ŠE 3,600 3,500 3,400 1,100 1,000 800 J^ 600 400 E 200 a a a a a a Source: SURS; calculations by IMAD. 1 Given that in the same period, exports of services in road transport increased by more than a tenth, according to data of the Bank of Slovenia, it can be concluded that the share of transport performed by Slovenian carriers for foreign business entities rose year-on-year (while the share of transport for domestic clients declined). 2 In year-on-year terms, the volume of this type of international transport dropped by as much as 17.2%, while it was up 17.7% relative to Q1 2008. Road transport had decreased by 5.8% since Q1 2008. 3 More than two fifths of national transport (measured in tonne km; SURS data for 2013) are accounted for by transport of mining and quarrying products, non-metallic mineral products and metals and metal products, i.e. primarily products that are used in construction, In real terms the value of construction put in place rose by 36.7% year-on-year in the first quarter of 2014. 900 700 500 300 75 Economic sentiment stopped improving in the middle of the year. Since May (when most of them were highest), the values of confidence indicators have deteriorated in all sectors. Only consumer confidence improved further in the summer months. Figure 17: Business trends 40 OJ |E 30 20 != 10 0 !E -10 ■Ö . != -20 ■Ö -30 -40 -50 -60 -70 - Economic sentiment Retail trade 1*1 I Manufacturing Service activ. Consumers Source: SURS; calculations by IMAD. Labour market Growth in the number of persons in employment10 picked up in the second quarter (seasonally adjusted). The number of employed persons had started to rise slowly Figure 18: Persons in employment according to the statistical register of employment (SRE) and registered unemployed -Employed according to SRE (left axis) -Registered unemployed (right axis) 240 220 1^ 200 180 120 .<2 a 100 ^ D 80 60 40 Source: SURS, ESS; calculations by IMAD. Figure 19: Persons in employment by activity 1Q2 2013 Q3 2013 «04 2013 «01 2014 «02 2014 Manufacturing Construction Market services Public services Source: SURS, calculations by IMAD. in the second quarter of 2013 and in February 2014 its growth strengthened slightly. In the second quarter of 2014, employment rose more notably (by 0.5%, seasonally adjusted) and was almost 1% higher year-on-year. Relative to the same period of 2013, the number of employed persons was up particularly in individual market service activities,11 especially employment activities (by 55.5% or 3.6 thousand persons) and public service activities (education, health care) and, to some extent, manufacturing. Despite the increase in the last year, the Table 4: Indicators of labour market trends in % 2013 VI 14/ V 14 VI 14/ VI 13 I-VI 14/ I-VI 13 Labour force -0.7 0.0 0.7 0.3 Persons in formal employment -2.0 0.1' 0.7 0.0 Employed in enterprises and organisations and by those self-employed -2.6 0.2 0.6 0.1 Registered unemployed 8.8 -0.3^ 0.6 2.7 Average nominal gross wage -0.2 0.2^ 1.7 1.0 - private sector 0.6 0.1' 2.1 1.6 - public sector -1.3 0.4^ 1.4 0.3 -of which general government -2.5 0.4^ 1.4 -0.2 2013 VI 13 V 14 VI 14 Rate of registered unemployment (in %), seasonally adjusted 13.1 13.2 13.2 13.2 Average nominal gross wage (in EUR) 1,523.18 1,495.45 1,531.66 1,521.38 Private sector (in EUR) 1,404.40 1,366.75 1,408.40 1,396.00 Public sector (in EUR) 1,740.78 1,731.79 1,760.89 1,755.94 -of which general government (in EUR) 1,716.48 1,716.93 1,738.75 1,741.45 Sources: ESS. SURS; calculations by IMAD. Note: 1seasonally adjusted. 10 According to the Statistical Register of Employment; these are employed and self-employed persons excluding self-employed farmers. 11 It was up year-on-year in administrative and support service activities, professional, scientific and technical and information and communication activities. 160 140 -t: Table 5: Unemployment flows I-XII 13 I-VIII 13 I-VIII 14 VIII 14 INFLOW OF UNEMPLOYED - TOTAL 108,344 67,144 63,135 5,581 First-time jobseekers 19,071 8,205 8,512 783 Jobseekers who lost work 88,710 58,823 54,546 4,795 Bankruptcy of the company 3,732 2,665 2,658 183 Business reasons or compulsory settlement 17,896 11,948 10,349 883 Termination of fixed-term contracts 54,004 35,547 33,066 2,892 Other reasons 13,078 8,663 8,473 837 Other (transitions between records) 563 116 77 3 OUTFLOW OF UNEMPLOYED - TOTAL 102,390 68,605 72,366 6,996 Unemployed who found work 65,054 44,576 50,691 4,072 Public works 5,423 4,486 4,842 164 Self-employment 5,789 2,983 2,152 182 Transitions into inactivity 13,295 7,967 7,317 1,002 Retirement 8,511 5,412 4,341 619 Breaches of regulations 14,772 9,913 7,751 1,209 Other (transfer to other registers, other) 9,269 6,149 6,607 713 Table 6: Persons in employment by activity Number in '000 Change in Number 2013 VI 13 V 14 VI 14 2013/ 2012 VI 14/ V 14 VI 14/ VI 13 I-VI 14/ I-VI 13 Manufacturing 177.7 177.7 178.4 178.1 -5,235 -323 433 41 Construction 54.3 55.2 54.8 55.0 -5,541 286 -124 -322 Market services 333.1 333.6 338.2 339.8 -5,260 1,583 6,191 3,082 -of which: Wholesale and retail trade, repair of motor vehicles and motorcycles 104.2 103.8 103.7 103.9 -3,656 261 137 -1,230 Public services 170.1 170.7 171.5 171.6 -1,489 83 944 713 Public administration and defence, compulsory social security 49.1 49.4 49.0 49.1 -1,559 83 -251 -408 Education 65.4 65.5 66.4 66.2 -71 -188 678 620 Human health and social work activities 55.6 55.7 56.1 56.3 141 188 517 500 Other 58.4 59.3 57.1 57.5 1,121 376 -1,816 -3,723 Source: SURS; calculations by IMAD. number of employed persons in the second quarter of 2014 was still 9.3% lower than in the same period of 2008 (seasonally adjusted). Data from the Labour Force Survey also show a further rise in employment in the second quarter (by 1.3%, seasonally adjusted); employment according to the national accounts statistics was also up relative to the same period last year (by 0.7%). Registered unemployment has been falling since March (seasonally adjusted). The decline is mainly due to increased hiring. In August, the number of registered unemployed continued to drop (seasonally adjusted). At the end of the month, 114,784 persons were registered as unemployed, which is 1.6% less than in the previous August. In the first eight months of the year, fewer persons registered as unemployed than in the same period last year, mainly on account of a smaller inflow into unemployment due to the termination of fixed-term contracts and fewer dismissals for business reasons. The outflow from unemployment was larger than in the same period last year, the main factor being a visibly larger outflow into employment. There were slightly fewer transitions into inactivity and by a fifth fewer breaches of regulations. With a lower number of the registered unemployed, the registered unemployment rate also fell slightly in the second quarter, but remained very high (13.2%, seasonally adjusted). The number of unemployed persons according to the Labour Force Survey also declined in the second quarter (seasonally adjusted), so that the unemployment rate fell by 0.7 percentage points, to 9.6% (seasonally adjusted). Slightly rising since mid-2013, the average gross earnings per employee rose by a further 0.4% in the second quarter (seasonally adjusted). This time, both the private and the public sector contributed equally to the increase. After stagnating in 2012,12 gross earnings in the private sector have been gradually rising in the last year and a half (by 0.2% in the second quarter) and - after two years - 12 The growth rates in 2010 and 2011 were impacted particularly by the increase in the minimum wage and changes in employment structure. Source: ESS. Table 7: Earnings by activity Gross wage per employee, in EUR Change, in % 2013 VI 2014 2013/2012 VI 14/V 14 VI 14/VI 13 I-VI 14/I-VI 13 Average gross wage per employee 1,523.18 1,521.38 -0.2 -0.7 1.7 1.0 Private sector activities (A-N; R-S) 1,473.47 1,465.10 0.7 -0.9 2.0 1.5 Industry (B-E) 1,482.76 1,492.33 2.6 0.0 4.0 3.2 - of which manufacturing 1,436.53 1,445.89 2.8 -0.3 4.3 3.4 Construction 1,188.38 1,179.81 -1.4 -1.2 0.3 0.3 Traditional services (G-I) 1,355.65 1,347.27 0.1 -0.6 1.4 0.9 Other market services (J-N;R-S) 1,691.40 1,655.26 -1.3 -2.2 0.4 0.0 Public service activities (O-Q) 1,670.91 1,690.14 -2.3 0.0 1.0 -0.4 - Public administration and defence, compulsory social security 1,727.19 1,755.04 -1.4 0.0 1.9 0.2 - Education 1,621.86 1,638.38 -3.3 0.1 0.6 -0.6 - Human health and social work activities 1,677.78 1,692.60 -2.0 -0.1 0.7 -0.7 Source: SURS; calculations by IMAD. gross earnings are this year also increasing in the public sector. In addition to growth in public corporations,13 the second quarter also recorded a more visible increase in gross earnings in the general government sector (0.7%), particularly due to the disbursement of suspended promotions of public servants.14 Gross earnings in the general government sector were thus only 0.2% lower year-on-year in the first half of the year, while gross earnings in the private sector and public corporations were around 1.5% higher. Figure 20: Average gross earnings per employee -Total ■ Private sector -Public sector 1,900 J^ 1,800 c 1,700 csl 1,600 cu cu J^ 1,500 E cu SD 1,400 cp 1,300 cS !5 1,200 ----- of which general government sector --------- -of which public corporations O O Source: SURS. 13 Public corporations are corporations controlled by units of the general government sector, the basic criterion for determining control being majority ownership (owning more than half of the voting shares). They include companies, banks, insurance corporations, old people's homes, pharmacies, etc. 14 The suspended promotions are public servants' promotions from 2011 (promotions to a higher job title and pay rank), which, in line with the Agreement on further measures in the field of salaries and other labour costs in the public sector aiming to balance public finances in the period from 1 June 2013 to 31 December 2014 (Official Gazette of the RS, No. 46/2013) started to be paid only in April 2014. Prices In August,15 consumer prices were down year-on-year for the first time since2009 (-0.3%). The decline was impacted primarily by lower prices of energy and unprocessed food. These also marked the price movements in the euro area, which saw the lowest growth in the last five years (0.3%), according to Eurostat's flash estimate. Figure 21: Headline and core inflation in Slovenia and in the euro area -Slovenia HICP • Slovenija HICP - core inflation - Euro area HICP Euro area HICP - core inflation Source: Eurostat. This year, price movements remain under the impact of subdued demand and the absence of price shocks from the international environment. This year's modest growth (0.4%) is thus mainly due to higher prices of services (1.5 percentage points), the contribution of which rose slightly from the same period last year. This year, the absence of international commodity price shocks mainly shows in 15 Detailed data on August's inflation will be released later and commented upon in the next SEM. 8 7 6 5 4 3 0 -1 Table 8: Breakdown of the HICP into sub-groups - July 2014 Slovenia Euro area Cum. % Weight % Contribution in p.p. Cum. % Weight % Contribution in p.p. Total HICP 0.4 100.0 0.4 -0.4 100.0 -0.4 Goods -1.2 64.8 -0.8 -1.9 57.2 -1.1 Processed food, alcohol and tobacco 1.1 16.1 0.2 0.6 12.3 0.1 Non-processed food 0.8 7.5 0.1 -1.6 7.5 -0.1 Non-energy industrial goods -4.5 26.4 -1.2 -3.8 26.7 -1.0 Durables -1.3 8.7 -0.1 -0.7 8.4 -0.1 Non-durables -0.6 8.5 -0.1 0.3 8.1 0.0 Semi-durables -10.4 9.2 -1.0 -8.4 10.2 -0.9 Energy 0.8 14.7 0.1 -0.4 10.8 0.0 Electricity for households -3.2 2.8 -0.1 0.5 2.7 0.0 Natural gas 1.5 1.1 0.0 -3.2 1.8 -0.1 Liquid fuels for heating 3.3 1.3 0.0 -3.0 0.9 0.0 Solid fuels -0.7 1.0 0.0 -0.6 0.1 0.0 District heating 1.8 0.8 0.0 -2.2 0.6 0.0 Fuels and lubricants 2.1 7.6 0.2 0.7 4.8 0.0 Services 3.5 35.2 1.2 1.6 42.8 0.7 Services - dwellings 4.1 3.2 0.1 1.7 10.5 0.2 Services - transport 3.1 6.2 0.2 2.7 7.3 0.2 Services - communications 0.6 3.6 0.0 -2.2 3.1 -0.1 Services - recreation, repairs, personal care 4.8 14.3 0.7 2.4 14.7 0.4 Services - other services 2.4 8.0 0.2 1.3 7.2 0.1 HICP excluding energy and non-processed food 0.3 77.8 0.2 -0.3 81.7 -0.2 Source: Eurostat; calculations by IMAD. Note: ECB classification low growth rates of food (unprocessed food in particular) and energy prices, which together contributed 0.9 percentage points to inflation in the first seven months of last year (1.1%) (this year, 0.0 percentage points). Energy price movements continue to be moderate under the influence of lower energy prices (-3.8%) and somewhat Figure 22: Breakdown of year-on-year inflation c cp c is o I Other I Services Fuels and energy I Food July 2013 «July 2014 higher prices of liquid fuels (1.9%). The persistently weak domestic demand continues to impact the price movements of other, primarily durable and semi-durable, goods (-0.3 percentage points), whose purchases have declined owing to uncertainty during the recession. Figure 23: Inflation in selected countries in the euro area 4.0 3.5 3.0 # 2.5 2.0 1^1.5 (D 1.0 0.5 0.0 -0.5 -1.0 -I < z LJJ Source: Eurostat, calculations by IMAD. Core inflation declined somewhat in July and remains moderate in the absence of price pressures and under the impact of subdued demand. Given the current food and energy prices, it is moving above the actual inflation. Price growth in the euro area remained very low in July (0.4%). In July, euro area inflation declined again and remained below 1% in the majority of countries. The slight price growth was mainly the result of higher services prices (0.6 percentage points) while at the same time inflation was lowered by energy prices (-0.1 percentage points) as a consequence of lower euro prices of oil on global markets (-4.3%, year-on-year). As in Slovenia, price growth was impacted by lower prices of unprocessed food, particularly seasonal fruit and vegetables (-0.2 percentage points), which have dropped to record lows in the last five years. In July, industrial producer prices recorded smaller year-in-year declines on the domestic and foreign markets. The decline on the domestic market (-1.0%) was linked primarily to lower prices in the manufacture of metals (-0.8%), which were falling more slowly in the past four months (down 3 percentage points). Price dynamics on foreign markets were similar (-0.2%). There was also a slowdown in the movement of import prices, which otherwise fell year-on-year (-1.1%), but the decline was mitigated by metal prices, which rose for the first time since October 2012 (0.5%). Figure 24: Movements of domestic producer prices of manufactured goods on the domestic and foreign markets -PPI (domestic) ■ Mfr. of basic metals and fabricated metal prod., exc. mach. and equip. (domestic) ■ Mfr.of food products; beverages; tobacco products (domestic) - PPI (foreign) 20 16 12 C 8 SI 4 0 tp -4 >- -8 -12 -16 i i' i Source: SUPS The year-on-year deterioration in the price competitiveness of the economy continued in June. In the first six months of 2014, Slovenia was around the middle of euro area countries in terms of the loss in price competitiveness. Only a relatively smaller group of euro area countries recorded improvement in price competitiveness in the first half of the year.16 The year-on-year growth of the real effective exchange rate as measured by the relative HICP17 dropped to 0.4% in June. This was a consequence of the smaller appreciation of the euro, which was falling at the monthly level in the past three months against most currencies of Slovenia's main trading partners. Relative prices, having declined until May, rose in June. Figure 25: Real effective exchange rate deflated by the HICP -REER HICP -NEER • HICP Iš 1 S5-1 Source: ECB; calculations by IMAD. Balance of payments The current account of the balance of payments has been in surplus for the third consecutive year. The surplus in current transactions increased further in the second quarter of this year, reaching EUR 603.3 m. Despite the higher surplus in external trade, it was slightly lower year-on-year due to a higher deficit in the balance of factor income as a result of higher net payments of interest on general government debt. The balance of current transfers improved slightly. The surplus in external trade widened again in the second quarter owing to a higher surplus in merchandise trade. The year-on-year increase in the surplus of merchandise trade was mainly contributed by exports to the EU, which had increased for the fifth quarter in a row, while exports to non-EU markets continued to fall. The surplus of trade in services narrowed year-on-year, primarily on account of trade in the group of other business services. In this group, surpluses in intermediation services and services related to trade decreased,18 while deficits in administrative and support service activities and professional and technical 16 Cyprus, Greece and Portugal. 17 In Slovenia, in comparison with its trading partners. 18 All payments related to monetary intermediation, commission for other financial intermediation services and other costs. 5 4 3 2 0 -2 -3 -4 activities increased. Expenditure on investment works, construction and installation carried out by foreign companies in Slovenia was also up, while revenue of Slovenian construction companies abroad declined. Figure 26: Components of the current account of the balance of payments 1000 800 600 400 200 E 0 " -200 -400 -600 -800 -1000 ■ Merchandise trade ■ Factor income -Current account Services trade I Currenti transfers a a Source: BS. The deficit in factor income in the second quarter was up year-on-year primarily as a result of a larger outflow of income from capital, while the balance of current transfers improved. The year-on-year widening of the deficit in factor income in the second quarter was mainly underpinned by net payments of interest on external debt related to higher net interest payments on government sector debt. The private sector continued to make debt repayments abroad. The year-on-year decline in the net interest payments of the private sector was similar to that Figure 27: Net interest income by sector 50 ■ Bank of Slovenia ■ Private sector General government Total i -100 -150 in the first quarter. Amid the low interest rate on the main refinancing operations, the Bank of Slovenia reported stable, positive, net interest income and received higher interest on its financial assets in foreign accounts. The net inflow of income from labour is rising because of a larger number of daily migrants working abroad. The surplus in the balance of current transfers widened somewhat year-on-year in the second quarter, the main factor being higher private sector transfers (annuities, pensions, disability allowances and other social contributions). In the second quarter, international financial transactions19 recorded a substantial net inflow of portfolio investment and direct investment, and a high net outflow of other investment. Financial transactions recorded a net outflow of EUR 458.1 m in the second quarter (EUR 671.9 m in the same period of last year). Portfolio investment saw a net inflow in the second quarter (EUR 1,351.5 m) owing to higher liabilities of the government to foreign portfolio investors. Direct investment flows strengthened after the modest inflows in previous quarters, and direct investment recorded a net inflow of EUR 522.7 m in the second quarter. The bulk of capital inflows were equity capital of Austrian and Croatian investors, mainly related to the sale of domestic companies to foreign owners. Other investment registered a net outflow of EUR 2,346.0 in the second quarter, largely owing to the net outflow of currency and deposits. The Bank of Slovenia increased currency and deposits in foreign accounts.20 The deposits of commercial banks and households also rose. Short- Figure 28: Financial transactions of the balance of payments 3,500 3,000 2,500 2,000 1,500 1,000 ^ 500 D ^ 0 -500 -1,000 -1,500 -2,000 -2,500 -3,000 -3,500 -4,000 ■ Direct investment I Financial derivatives -Net financial flow I Portfolio investment ■ Other investment a a a a a Source: BS; calculations by IMAD. a a a a a a Source: BS; calculations by IMAD. 19 Excluding international monetary reserves. 20 In February, the BoS repaid its liabilities within the framework of the TARGET position. With the issue of government securities, the claims of the Bank of Slovenia within the Eurosystem therefore increased in April. 0 -50 Table 9: Balance of payments I-VI 14, in EUR m Inflows Outflows Balance1 Balance, I-VI 13 Current account 15,147.7 14,179.2 968.5 1,105.7 - Trade balance (FOB) 11,575.0 10,938.0 637.0 370.4 - Services 2,548.3 1,702.1 846.2 1,022.5 - Income 311.2 788.0 -476.9 -247.6 Current transfers 713.3 751.1 -37.8 -39.6 Capital and financial account 5,230.4 -6,265.7 -1,035.3 -1,563.3 - Capital account 174.2 -213.8 -39.6 27.6 - Capital transfers 113.9 -162.6 -48.8 16.8 - Non-produced, non-financial assets 60.3 -51.2 9.2 10.7 - Financial account 5,056.2 -6,051.9 -995.7 -1,590.9 - Direct investment 668.0 -78.4 589.6 -750.0 - Portfolio investment 4,268.5 185.8 4,454.3 2,230.7 - Financial derivates -3.6 19.4 15.7 -7.2 - Other investment 123.3 -6,013.2 -5,889.9 -3,111.8 - Assets 109.8 -4,200.6 -4,090.8 -2,070.2 - Liabilities 13.5 -1,812.6 -1,799.1 -1,041.5 - Reserve assets 0.0 -165.5 -165.5 47.4 Net errors and omissions 66.8 0.0 66.8 457.6 Source: BS. Note: "a minus sign (-) in the balance indicates a surplus of imports over exports in the current account and a rise in assets in the capital and financial account and the central bank's international reserves. term trade credits to the rest of the world continued to increase as a consequence of export growth. Commercial banks continued to repay foreign loans, while nonresidents were withdrawing their deposits from Slovenian banks. At the end of June, Slovenia's net external debt amounted to EUR 12.3 bn (34.4% of the estimated GDP) and was only EUR 0.2 bn higher than in December 2013. Figure 29: Slovenia's net external debt I General government IBank of Slovenia ■ Private sector -Net external debt 20,000 17,500 15,000 12,500 10,000 S= 7,500 5,000 2,500 0 -2,500 -5,000 -7,500 a a a a a a a Source: BS. Note: positive (negative) value means net external debt (net external claims). Gross external claims in debt instruments stood at EUR 31.7 bn at the end of June (89.0% of GDP), up EUR 3.9 bn on December 2013. The increase was mainly due to short-term claims of the banking sector, i.e. a rise in financial assets of the Bank of Slovenia and commercial banks in the form of currency and deposits in foreign accounts. The volume of short term trade credits also rose, which is related to further growth in exports of goods and services. Gross external debt amounted to EUR 44.0 bn at the end of June (123.4% of GDP), up EUR 4.1 bn from December 2013. The increase was the result of general government borrowing by selling bonds. While general government debt increased further, the debts of the Bank of Slovenia to the Eurosystem and the private sector (commercial banks, in particular) declined. Financial markets In July, the deleveraging of non-banking sectors eased slightly in comparison with that in June; in the first seven months, it was slightly lower than in the same period last year. The volume of loans to domestic non-banking sectors decreased by more than EUR 200 m in July. Almost the entire decline was the result of corporate sector deleveraging. Loans to households also declined, but to a lesser extent, while the volume of government loans rose slightly (EUR 12.1 m). In the first seven months of the year, the volume of loans to domestic non-banking sectors shrank by around EUR 1 bn, which is approximately 15% less than in the same period of 2013. The decline was largely due to lower household and government deleveraging, corporate and NFI deleveraging being similar to last year's owing to substantial debt repayments in June and July. Banks continued to deleverage abroad and reduce liabilities to the Eurosystem. The volume of household and government deposits is rising. Household deleveraging continues to decrease. In July, it dropped by EUR 2.4 m, recording one of the smallest monthly declines in the last year. Household loans shrank by close to EUR 110 m in the first seven months, nearly half less than in the same period last year. The more moderate decline in household loans was mostly due to a smaller fall in consumer loans and renewed growth in housing loans, while loans for other purposes declined by roughly the same extent as in the previous year. Corporate and NFI deleveraging was relatively high in the past two months. In the first seven months of the year, the volume of corporate and NFI loans declined by around EUR 870 m, only around 1% less than in the same period last year. More than half of the decline is attributable to debt repayments in June and July, which together exceeded EUR 480 m. Enterprises and NFIs recorded net borrowing abroad for the second consecutive month. In June, net flows of foreign Figure 30: Increase in household, corporate and NFI and government loans ■ Corporate and NFIs I ■ Households Government - Total Source: BS; calculations by IMAD. Figure 31: Net flows of corporate and NFI foreign loans and gaps between domestic and foreign interest rates ^^Short-term loans (left axis) ^■Long-term loans (left axis) -Gaps between domestic and foreign interest rates (right axis) 550 700 600 500 400 300 ^^ 200 iE 100 0 -100 -200 -300 -400 500 450 400 350 iz 300 250 Ü j= 200 150 100 50 0 Source: BS; calculations by IMAD. loans amounted to EUR 77.1 m, which is the highest figure this year. They were entirely the result of long-term net borrowing, which was close to EUR 120 m. In the first half of the year, corporate and NFI net repayments abroad totalled almost EUR 40 m. The relatively high net flows of foreign loans in some months indicate that financially stable enterprises still have access to foreign sources of debt financing, meaning that the best clients are gradually leaving the Slovenian banks. These have retained their very high active interest rates even half a year after the beginning of the banking system stabilisation. They are moving around 240 basis points in loans over EUR 1 m and are among the highest rates in the euro area. Bank deleveraging abroad is steadily slowing, but access to foreign sources of financing remains very limited. Banks repaid around EUR 95 m net in foreign liabilities in June. They were mainly repaying long-term loans and, to a lesser extent, deposits. In the first half of the year, bank net repayments of foreign liabilities totalled around EUR 770 m, which is almost a fifth less than in the same period last year and the lowest amount in the last four years. The slower repayment of foreign liabilities is, in our estimation, mainly the result of a significantly decline in liabilities to foreign banks, which amounted to only EUR 5.1 bn at the end of June, down more than 70% from the highest level in August 2008. Figure 32: Net repayments of foreign liabilities of Slovenian banks 2,000 -:-:-:-:-:-:-:- 1,500 1,000 -1,000 -1,500 ......i........... Bonds Deposits ^^m Short-term loans ^^m Long-term loans ! -Total .......................-...........-...........?.......... Source: BS; calculations by IMAD. Household and government deposits are increasing this year. Household bank deposits were up around EUR 540 m in the seven months to July, which is the largest increase in six years, indicating a slightly greater confidence of savers in the Slovenian banking system. Overnight deposits rose the most. Long-term deposits also increased some, while short-term deposits continued to decline. Government deposits were up EUR 1.3 bn this year. Unlike households, the government also increased short-term deposits, in addition to overnight deposits, the increase in long-term deposits being negligible. More than half of this year's growth can be explained by July's transfer of government deposits from the account with the central bank to the accounts with commercial banks. The deterioration in the quality of banks' assets remains one of the main risks to the Slovenian banking system. The share of arrears of more than 90 days rose by almost 2 percentage points to 15.3% in the first half of the year, the share of all arrears fluctuating around 18% in recent months. This year, the creation of impairments and provisions is less intense (despite the surge in June), around EUR 220 m in the first six months, which is approximately half less than in the same period of 2013. 500 0 -500 Table 10: Financial market indicator Domestic bank loans to nonbanking sector and household savings Nominal amounts, EUR bn Nominal loan growth, % 31. XII 13 31. VII 14 31. VII 14/30. VI 14 31. VII 14/31. XII 13 31. VII 14/31. VII 13 Loans total 26,176.0 25,183.5 -0.8 -3.8 -16.9 Enterprises and NFI 15,594.8 14,724.7 -1.4 -5.6 -24.8 Government 1,664.0 1,651.0 0.7 -0.8 -1.4 Households 8,917.3 8,807.9 0.0 -1.2 -2.7 Consumer credits 2,213.4 2,166.6 -0.6 -2.1 -8.3 Lending for house purchase 5,306.5 5,328.3 0.3 0.4 1.5 Other lending 1,397.3 1,313.0 -0.6 -6.0 -8.8 Bank deposits total 14,588.1 15,124.2 0.8 3.7 2.3 Overnight deposits 6,446.6 6,998.8 1.4 8.6 7.7 Short-term deposits 3,681.9 3,478.8 -0.7 -5.5 -8.9 Long-term deposits 4,456.1 4,641.7 1.0 4.2 4.0 Deposits redeemable at notice 3.5 4.8 1.9 37.6 -18.3 Mutual funds 1,854.6 2,037.0 1.6 9.8 12.2 Government bank deposits, total 1,284.1 2,610.5 37.0 103.3 -26.5 Overnight deposits 22.9 736.4 350.8 3.117.5 89.8 Short-term deposits 512.8 1,258.3 -4.8 145.4 -21.1 Long-term deposits 738.5 604.4 44.6 -18.2 -60.3 Deposits redeemable at notice 9.8 11.3 282.6 14.8 -75.2 Sources: Monthly Bulletin of the BS, SMA (Securities Market Agency); calculations by IMAD. Figure 33: Creation of impairments and provisions and the share of arrears of more than 90 days in the Slovenian banking system ^■Provisions and impairments -Share of arrears of more than 90 days (right axis) 500 450 400 350 300 250 iE 200 150 100 50 0 -50 22 20 18 16 14 12 8 6 4 2 0 Figure 34: 10-year government bond yield spread vis-avis German bond - Slovenia -Italy - Portugal ■ Ireland -Spain ----France 12 3 fl, 1 2 iž C ^ Source: Bloomberg; calculations by IMAD. Source: BS; calculations by IMAD. The yield to maturity of Slovenian 10-year government bonds declined in August (by 14 basis points to 2.99%), while the spread against the German benchmark bond has been decreasing since the middle of the month (210 basis points). The yield fell substantially in the last ten days of August, reaching at the end of the month the lowest level so far. The dynamic was similar to those in other peripheral euro area countries and follows the ECB announcement regarding potential additional measures. Public finance General government revenue increased relative to the first half of 2013 in all main categories. Year-on-year growth was recorded for both tax revenues (excluding social contributions by EUR 351.7 m or 10.0%), particularly revenues from corporate income tax and value added tax, and non-tax revenues (by EUR 215.6 m or 51.0%), 7 6 5 0 mainly on account of a one-off inflow from concessions. The payments of social security contributions also rose year-on-year (by EUR 58.1 m or 2.3%), while EU funds remained at the same level as in 2013 (increase of EUR 1.0 m or 0.3%). Among tax revenue, the largest year-on-year increases in the first half of 2014 were in revenue from corporate income tax (by EUR 174.5 m), which was almost three times as high as last year, and value added tax (by EUR 137.3 m or 10.1%). The higher revenue from corporate income tax is attributable to the waning effect of the changes in tax legislation in 2012, the freeze on the tax rate at 17% and the restriction on the transfer of companies' losses from previous years. The higher realisation of value added tax is mainly due to the increase in tax rates in July 2013. Revenue from excise duties and revenue from personal income tax also increased, the former by EUR 35.8 m or 5.4%, the latter by EUR 21.7 m or 2.1%. Owing to the introduction of new taxes on lottery tickets and financial services in 2013, revenue from taxes on special services was also up year-on-year (by EUR 27.6 m or 40.4%). As a result of higher annual road user charges, revenue from this source also increased compared with the same Figure 35: Consolidated general government revenue and expenditure 17.0 E 16.5 S 16.0 ^^ 15.5 E 14.5 - General government revenue, total -General government expenditure, total Source: MF; calculations by IMAD. Table 11: Taxes and social security contributions period of 2013 (by EUR 9.3 m or 13.4%). On the other hand, revenue from taxes on property declined year-on-year in the first half of 2014 (by EUR 43.5 m or 47.3%), which is a consequence of the abrogation of the real estate tax and hence a delay in assessing compensation for the use of building-ground. Revenue from customs duties also dropped relative to the same period of 2013 (by EUR 4.2 m or 9.8%). Non-tax revenues increased year-on-year in the first half of 2014 across all main categories. The largest increases were in revenue from entrepreneurial and property income (by EUR 146.3 m or 76.5%), primarily owing to one-off revenue from concessions for radio frequencies for mobile telephony in May (EUR 148.7 m), and other, mainly one-off, non-tax revenues (by EUR 61.1 m or 41.3%). Year-on-year growth in general government expenditure in the first half of the year was mainly underpinned by higher investment and growing interest payments, while expenditure on goods and services declined. The year-on-year increase in expenditure in the first six months was mainly the result of increased investment (an increase of EUR 157.3 m or 41.1%) and interest payments (an increase of EUR 59.4 m or 9.7%). Year-on-year growth was also recorded by transfers to non-profit institutions and other domestic current transfers (by EUR 8.8 m or 2.6%), while all other categories of expenditure declined year-on-year, or remained at last year's level. The largest year-on-year decline in the first half of the year was in purchases of goods and services (by EUR 56.4 m or 5.0%) and reserves (by EUR 33.7 m or 43.5%). Subsidies also decreased (by EUR 16.6 m or 5.5%), on account of subsidies to private enterprises but not to public corporations, as did salaries and wages and other personnel expenditures including social security contributions (by EUR 15.2 m or 0.8%); the latter dropped on account of lower expenditure on wages and salaries for direct budget users, while in government institutions this expenditure increased. Transfers to individuals and households in the first half of the year were similar to those in the same period last year; the increase in expenditure on pensions, social security transfers and scholarships was namely roughly mitigated by a decline in transfers to the unemployed, wage compensations, family receipts and parental compensations and other transfers. EUR m Growth, % Structure, % I-VI 2014 VI 2014/VI 2013 I-VI 2014/I-VI 2013 I-VI 2013 I-VI 2014 General government revenue - total 7,537.3 9.1 9.0 100.0 100.0 Corporate income tax 236.9 1.0 279.4 0.9 3.1 Personal income tax 1,046.8 -7.3 2.1 14.8 13.9 Value added tax 1,491.9 12.7 10.1 19.6 19.8 Excise duties 694.3 79.6 5.4 9.5 9.2 Social security contributions 2,606.4 2.2 2.3 36.9 34.6 Other general government revenues 1,461.0 15.9 15.4 18.3 19.4 Source: PPA - Report on Payments of All Public Revenues; calculations by IMAD. 15.0 14.0 Table 12: Consolidated general government revenue and expenditure 2013 2014 EUR m % of GDP Growth, % I-VI 14 v mio EUR I-VI 14/I-VI 13 Revenue - total 14,725.1 41.7 -1.8 7,537.3 9.0 - Tax revenues 12,647.9 35.9 -3.6 6,464.0 6.8 - Taxes on income and profit 2,137.4 6.1 -19.5 1,281.9 17.8 - Social security contributions 5,127.2 14.5 -2.2 2,606.4 2.3 - Domestic taxes on goods and servises 5,027.3 14.3 3.1 2,471.0 9.2 - Receipts from the EU budget 938.2 2.7 11.0 397.9 0.3 Expenditure - total 16,282.7 46.2 1.0 8,247.0 1.2 - Wages and other personnel expenditure 3,617.0 10.3 -3.0 1,830.0 -0.8 - Purchases of goods and services 2,237.4 6.3 -5.7 1,068.5 -5.0 -Domestic and foreign interest payments 840.1 2.4 29.7 673.7 9.7 - Transfers to individuals and households 6,343.0 18.0 -0.6 3,162.1 0.0 - Capital expenditure 1,030.8 2.9 12.7 457.5 58.9 - Capital transfers 319.0 0.9 -0.3 82.2 -13.0 - Payment to the EU budget 425.5 1.2 9.0 258.6 -1.4 Deficit -1,557.6 -4.4 38.3 -709.6 -42.5 Source: MF, Public Finance Bulletin. The general government deficit21 in the first six months of the year was EUR 709.6 m, 42.5% less than in the same period of 2013. Notwithstanding a lower deficit, a larger part of the yearly adopted state budget was already executed. The year-on-year decline in the general government deficit is attributable to higher year-on-year growth in revenue (by EUR 622.5 m or 9.0%) than expenditure (by EUR 98.0 m or 1.2%). Revenue growth was largely due to higher revenue from corporate income tax, the increase in VAT rates and a one-off inflow from concessions. On expenditure side, in the first half of the year, the largest year-on-year increases were recorded in expenditure on investment (for the first time since 2011) and interest payments. Figure 36: Receipts from the EU budget in 2013 and 2014 ■ Total receipts in 2014 (January-June) ■ Total receipts in 2013 Common Agricultural Policy Other 100 150 200 250 300 350 400 450 In EUR m Source: MF, calculations by IMAD. In the first seven months of this year, the central government budget received from the EU budget just over 36% of the amount envisaged for this year from this source. Between January and the end of July, the central government received a total of EUR 435.9 m from the EU budget, or 36.3% of the level planned in the adopted budget for 2014. The bulk of receipts were funds under the Common Agricultural and Fisheries Policies (EUR 198.0 m, which is 71.8% of the foreseen amount) and from Structural Funds (EUR 151.7 m, 29.7% of the level planned). EUR 80.7 m was received from the Cohesion Fund, which is only 20.6% of the amount envisaged for this year. Slovenia's payments to the EU budget totalled EUR 283.7 m in the first seven months, 71.5% of the total amount planned for this year. Figure 37: Planned and absorbed EU funds, 2014 and 2013 ■ Absorption rate with regard to the revised state budget for 2014 (January -June) ■ Absorption rate with regard to the revised state budget for 2013 Common Agricultural Policy Other 21 According to the consolidated balance on a cash basis. 0 10 20 30 40 50 60 70 80 90 100110120130140150 In % Source: MF, calculations by IMAD. 0 50 In the first seven months of 2014, the central government of Slovenia had a positive net budgetary position against the EU budget at EUR 152.2 m, which is somewhat more favourable than in the same period last year (EUR 146.2 m). Receipts from the Cohesion Fund and under the Common Agricultural and Fisheries Policies increased (by EUR 34.9 m or EUR 12.0 m), while the absorption from Structural Funds declined year-on-year (down EUR 48.1 m). %J a o ■Ö 01 u 31 Ö! V) Social protection expenditure in 2012 After several years of growth, social protection expenditure declined in 2012 as a result of legislative changes. Having increasing strongly in 2008 and 2009 owing to the economic crisis, expenditure recorded substantially slower growth in 2010 and 2011, while in 2012 it declined in nominal terms, by 1%. Slovenia allocated EUR 8.963 m for social protection programmes in 2012, 3.5% less than in 2011 in real terms, the decline being largely related to changes in social legislation22 and intervention measures aiming to restore fiscal balance.23 In 2012, expenditure on disability declined the most (8.3%), in addition to a lower number of beneficiaries of disability pensions and disability benefits, mainly as a consequence of changes in eligibility criteria for care allowance.24 The decline in expenditure on unemployment and family/children was impacted by the intervention law (ZUJF), which limited, or even reduced, certain rights (unemployment benefits, parental compensation). The modest growth of expenditure on the old age function (0.1%), which accounts for the bulk of total social protection expenditure, was, in our estimation, impacted by the restriction on the disbursement of the annual pension supplement (ZUJF).25 Alongside expenditure on old age, expenditure on housing, sickness/health care and social exclusion not elsewhere classified also expanded in 2012, mainly as a consequence of changes in social legislation. Although it fell in nominal terms, social protection expenditure as a share of GDP increased further in 2012 owing to a decline in GDP. Slovenia allocated 24.9% of GDP for social protection in 2012, 0.3 percentage points more than in 2011. Relative to the pre-crisis year 2008, expenditure was up as much as 4 percentage points, alongside the decline in GDP, mainly owing to the increase in expenditure as a consequence of the crisis and for demographic reasons. The largest share of expenditure is accounted for by expenditure on the old Tabela 13: Social protection expenditure, 2008-2012 age function (9.9% of GDP), which expanded the most in the 2008-2012 period (by 2 percentage points) due to the ageing of the population and hence a growing number of pensioners. Expenditure on sickness and health care also rose more notably in this period (by 1 percentage point) and accounts for a significant portion of total expenditure on social protection (7.9% of GDP). In 2012, the breakdown of expenditure by social protection function remained similar to previous years. Expenditure on old age again accounted for the largest share (40.5%), having increased by 0.5 percentage points in the last year and 1.9 percentage points in the entire period since the outbreak of the crisis. The share of expenditure on sickness and health care also expanded in 2012 relative to the previous year (by 0.7 percentage points to 32.2%), as did the share of expenditure on social exclusion not elsewhere classified (by 0.3 percentage points to 2.6%, while the share of expenditure on other functions declined slightly. Among the sources of funding, the contributions of the government, which have been increasing in the period after the beginning of the crisis, declined in 2012 as a result of changes in legislation. The share of general government contributions decreased to a still high 33.8%, which is 0.8 percentage points less than a year earlier but 4.7 percentage points more than in 2008. The decline is attributable to changes in legislation, which reduced, or limited, certain expenses that are financed directly from the budget. On the other hand, the share of employers' social contributions (26.6%) and the share of social contributions paid by protected persons (38.4%) - which together account for almost two thirds of receipts for social protection schemes - increased in 2012. With regard to the previous year, the share of employers' social contributions and social contributions of protected persons combined rose by 0.7 percentage points, while it was 4 percentage points lower relative to 2008, mainly as a consequence of a further decline in employment. Nominal growth, in % As a % of GDP 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Expenditure - total* 8.1 7.9 3.1 2.2 -1.0 21.0 23.7 24.4 24.6 24.9 Social benefits 8.3 8.1 3.1 2.5 -1.0 20.5 23.2 23.9 24.1 24.4 1. Sickness/health care 13.4 5.7 1.2 0.2 1.1 6.9 7.6 7.7 7.6 7.9 2. Disability 4.6 2.1 -0.2 -1.6 -8.3 1.6 1.7 1.7 1.7 1.6 3. Old age 5.7 8.7 5.1 3.9 0.1 7.9 9.0 9.5 9.7 9.9 4. Survivors 9.2 5.3 -1.3 2.0 -5.3 1.5 1.7 1.7 1.7 1.6 5. Family/children 10.9 12.4 3.5 2.5 -5.4 1.7 2.1 2.1 2.1 2.1 6. Unemployment -4.1 48.2 13.9 22.3 -7.2 0.4 0.6 0.7 0.8 0.7 7. Housing -20.0 -25.0 0.0 0.0 100.0 0.0 0.0 0.0 0.0 0.0 8. Social exclusion not elsewhere classified -4.8 19.5 8.9 -1.0 12.7 0.4 0.5 0.6 0.6 0.6 Source: SURS. 22 On 1 January 2012, the Exercise of Rights to Public Funds Act and the Financial Social Assistance Act entered into force. 23 The Fiscal Balance Act (ZUJF), passed in the middle of the year. 24 With the social legislation reform (the Financial Social Assistance Act), care allowance became a social protection right as of 1 January 2012. 25 The ZUJF limited the disbursement of the annual pension supplement to pensioners with higher pensions, and selectively reduced the pensions paid from the state budget. Tabela 14: Breakdown of social protection expenditure by function, 2008-2012, in % 2008 2009 2010 2011 2012 Sickness/health care 33.7 32.9 32.3 31.6 32.2 Disability 7.9 7.4 7.2 6.9 6.4 Old age 38.5 38.7 39.5 40.0 40.5 Survivors 7.5 7.3 7.0 7.0 6.7 Family/children 8.5 8.9 8.9 8.9 8.5 Unemployment 1.8 2.5 2.7 3.3 3.1 Housing 0.1 0.0 0.0 0.0 0.1 Social exclusion not elsewhere classified 2.0 2.3 2.4 2.3 2.6 Figure 38: Structure of social protection receipts, by year 100 90 80 70 60 50 cz 40 30 20 10 0 ■ Other receipts ■ General government contributions Social contributions by the protected persons I Employers' social contributions 2008 2009 2010 2011 2012 Source: SURS. EU countries, the HDI values remained more or less the same, or improved slightly, relative to the pre-crisis period. In those that were hit hardest by the crisis, it was the indicators of the income dimension that deteriorated the most. Slovenia's ranking among the very developed countries and above the EU average in terms of the HDI is mainly due to the education dimension.28 The education dimension is measured by the indicators of expected years of schooling for children and mean years of schooling for adults, according to which Slovenia ranks 7'h and 6'h, respectively, in the EU. A child who entered school in 2012 could expect to receive 16.8 years of schooling, on average, while the mean years of schooling for adults (i.e. the population aged 25 and older) was 11.9, the same as in the previous three years. The health dimension is measured by the indicator of life expectancy at birth, which was at 79.6 years for Slovenia in 2013, 0.2 years more than in the year before. In the EU, the highest life expectancy for people born in 2013 is recorded in Italy Human Development Index The UN Human Development Report 201426 ranks Slovenia among the countries with very high human development.27 The Human Development Index (HDI) is one of the main composite indicators of social well-being and measures three dimensions of human development: health, education and income. According to the HDI value, which remained unchanged for Slovenia (0.874) for the third consecutive year, Slovenia ranks 25th out of the 187 countries surveyed and 12'h among the EU countries, higher than those facing huge public finance difficulties and higher than all newer EU Member States. Similar to previous years, the highest HDI values were again recorded by Norway, Australia and Switzerland, and among the EU countries, the Netherlands. In most 26 The report published in 2014 refers to the HDI for 2013. The data used in the calculation are the latest available. 27 According to the report, countries with very high human development are those with HDI values higher than 0.804; countries with HDI values between 0.804 and 0.712 are classified as countries with high human development, while countries with medium and low human development are those with HDI values between 0.710 and 0.304. Figure 39: Comparison of the HDI and IHDI for EU countries, 2013 0.95 0.85 I Human Development Index (HDI) I Inequality-Adjusted Human Development Index (IHDI) 0.65 Source: HDR 2014, UNDP. 28 On both indicators, Slovenia is among the 15 most developed countries in the world. Source: SURS. Table 15: HDI and indicators of dimensions for Slovenia, 1990-2013 SLOVENIA HDI value Life expectancy at birth Expected years of schooling Mean years of schooling GNI per capita (2011 PPP USD) 1980 71.1 9.0 1985 71.9 11.6 9.9 1990 0.769 73.2 12.0 10.9 19,704 1995 0.777 74.5 12.6 11.2 16,758 2000 0.821 75.9 14.7 11.6 21,521 2005 0.855 77.7 16.6 11.4 25,245 2010 0.873 79.1 17.0 11.8 27,369 2011 0.874 79.3 16.8 11.9 27,782 2012 0.874 79.4 16.8 11.9 27,152 2013 0.874 79.6 16.8 11.9 26,809 Source: http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/SVN.pdf Tabela 16: Comparison of the HDI and its dimensions for EU countries, 2013 HDI rank* in the EU Country HDI rank Change in HDI rank HDI value HDI value Life expectancy at birth Expected years of schooling Mean years of schooling GNI per capita (PPP USD) 2013 2012-13 2012 2013 2013 2012 2012 2013 1 Netherlands 4 0 0.915 0.915 81.0 11.9 17.9 42,397 2 Germany 6 0 0.911 0.911 80.7 12.9 16.3 43,049 3 Denmark 10 0 0.900 0.900 79.4 12.1 16.9 42,880 4 Ireland 11 -3 0.901 0.899 80.7 11.6 18.6 33,414 5 Sweden 12 -1 0.897 0.898 81.8 11.7 15.8 43,201 6 U. Kingdom 14 0 0.890 0.892 80.5 12.3 16.2 35,002 7 France 20 0 0.884 0.884 81.8 11.1 16.0 36,629 8 Luxembourg 21 0 0.880 0.881 80.5 11.3 13.9 58,695 9 Austria 21 0 0.880 0.881 81.1 10.8 15.6 42,930 10 Belgium 21 0 0.880 0.881 80.5 10.9 16.2 39,471 11 Finland 24 0 0.879 0.879 80.5 10.3 17.0 37,366 12 SLOVENIA 25 0 0.874 0.874 79.6 11.9 16.8 26,809 13 Italy 26 0 0.872 0.872 82.4 10.1 16.3 32,669 14 Spain 27 0 0.869 0.869 82.1 9.6 17.1 30,561 15 Czech R. 28 0 0.861 0.861 77.7 12.3 16.4 24,535 16 Greece 29 0 0.854 0.853 80.8 10.2 16.5 24,658 17 Cyprus 32 0 0.848 0.845 79.8 11.6 14.0 26,771 18 Estonia 33 0 0.839 0.840 74.4 12.0 16.5 23,387 19 Lithuania 35 1 0.831 0.834 72.1 12.4 16.7 23,740 20 Poland 35 -1 0.833 0.834 76.4 11.8 15.5 21,487 21 Slovakia 37 1 0.829 0.830 75.4 11.6 15.0 25,336 22 Malta 39 0 0.827 0.829 79.8 9.9 14.5 27,022 23 Portugal 41 0 0.822 0.822 79.9 8.2 16.3 24,130 24 Hungary 43 0 0.817 0.818 74.6 11.3 15.4 21,239 25 Croatia 47 0 0.812 0.812 77.0 11.0 14.5 19,025 26 Latvia 48 0 0.808 0.810 72.2 11.5 15.5 22,186 27 Romania 54 1 0.782 0.785 73.8 10.7 14.1 17,433 28 Bulgaria 58 0 0.776 0.777 73.5 10.6 14.3 15,402 EU 0.856 0.857 78.6 11.2 15.9 30,765 Table 17: Gender-Related Human Development Index (GDI) in the EU uvrstitve znotraj EU Total Country Total Female Male HDI rank HDI fHDI rank Life expectancy at births Expected years of schooling Means years of schooling GNI (2011 PPP USD) mHDI rank Life expectancy at births Expected years of schooling Means years of schooling GNI (2011 PPP USD) 2013 2013 2000-12 2000-12 2013 2013 2013 2000-12 2000-12 2013 4 Netherlands 1 1 11 11 2 4 1 3 6 2 4 6 Germany 2 4 7 2 19 5 2 9 1 6 3 10 Denmark 3 3 18 7 4 3 4 16 5 7 6 11 Ireland 4 7 13 10 1 11 3 6 14 1 10 12 Sweden 5 2 4 9 12 2 6 1 17 18 7 14 U. Kingdom 6 5 15 1 11 9 7 5 8 14 12 20 France 7 8 2 16 18 8 9 10 18 15 8 21 Austria 8 18 6 27 20 10 8 7 21 17 2 21 Belgium 9 10 9 20 14 7 10 12 20 10 5 21 Luxembourg 10 12 10 15 28 1 5 11 10 27 1 24 Finland 11 6 5 22 5 6 12 15 26 4 11 25 SLOVENIA 12 9 14 8 3 14 15 18 7 12 17 26 Italy 13 14 3 24 10 13 11 2 22 13 9 27 Spain 14 11 1 26 7 12 13 4 27 3 13 28 Czech R. 15 16 19 5 9 25 14 19 3 11 16 29 Greece 16 19 8 23 13 22 17 8 24 5 18 32 Cyprus 17 22 17 17 27 15 16 13 2 26 15 33 Estonia 18 13 22 4 6 18 22 26 11 16 22 35 Lithuania 19 15 25 3 8 16 23 28 4 9 21 35 Poland 20 17 20 6 16 24 21 21 9 21 23 37 Slovakia 21 20 23 12 22 17 20 22 13 22 19 39 Malta 22 26 16 25 24 19 18 14 25 23 14 41 Portugal 23 24 12 28 15 21 19 17 28 8 20 43 Hungary 24 23 24 14 21 23 24 23 16 19 25 47 Croatia 25 25 21 19 23 26 25 20 12 25 27 48 Latvia 26 21 26 13 17 20 26 27 15 20 24 54 Romania 27 28 27 21 25 28 27 24 19 28 26 58 Bulgaria 28 27 28 18 26 27 28 25 23 24 28 Note: *with the exception of HDI, calculations by IMAD. (82.4 years), while Slovenia ranks in the lower half of the countries surveyed (17'h). According to the income dimension, measured by the indicator of gross national income (GNI) per capita at purchasing power parity in US dollars, Slovenia was placed 15'h in the EU, its GNI amounting to USD 26,809 in 2013, which is slightly lower than in 2012. The Inequality-Adjusted Human Development Index (IHDI) indicates the same loss in potential as a result of inequality as in the previous year. The IHDI is regarded as an index of the actual level of human development, i.e. development taking into account inequality.29 In 2013, the Slovenian IHDI totalled 0.824, which indicates a 5.8% loss in potential human development owing to inequality, the same as the year before. The loss of potential in Slovenia is primarily (10.6%) the result of inequality in the income dimension, the losses of potential in the other two dimensions being smaller than on average in the EU (in the health dimension 3.8%; in the education dimension 2.7%). Slovenia has the third smallest loss of potential in the EU (trailing Finland and the Czech Republic30); if inequality is taken into account, Slovenia's position improves by 5 places (from 12'h according to the HDI to 7'h according to the IHDI), which is mainly attributable to its smallest inequality in income in the EU and the relatively low inequality in education (7'h place). 29 Under perfect equality, the IHDI would equal HDI. 30 In the previous year, the Czech Republic was the only country with a high level of development that had a smaller loss (5.4%) . According to the Gender Inequality Index (GII31) and the (low) adolescence birth rate, Slovenia ranks 1st among the 149 countries surveyed. In 2013, the GII for Slovenia totalled 0.021. It includes indicators of women's reproductive health (maternal mortality rate and fertility rate of adult women), gender differences in educational attainment (participation in upper secondary and tertiary education) and political and economic activity (by the share of parliamentary seats held by women and the labour market participation rate for women and men). The Human Development Report takes into account the proportion of parliamentary seats held by women before the July 2014 elections (24.6%). The proportion of women in the newly elected parliament is 35%. This year's report introduces a new measure, the Gender-Related Development Index (GDI32). The GDI index (fHDI/ mHDI ratio) for Slovenia is 1.006, ranking Slovenia 5'h in the EU and 8'h among all countries surveyed. The Gender-Related Development Index takes into account inequalities by gender in all three basic dimensions of human development. The value of the female Human Development Index (fHDI) places Slovenia among the top ten countries in the EU (9'h). The high ranking is mainly due to the education dimension (8'h and 3rd, respectively); in terms of the health and income dimensions, Slovenia ranks 14'h. Slovenia's position in terms of the male Human Development Index (mHDI) is somewhat lower (15'h place). In terms of the mHDI, Slovenia also has the best results in comparison with other EU countries in the education dimension (7'h and 12'h, respectively), while it scores considerably lower with regard to health and income (18'h and 17'h). Life satisfaction According to the Eurobarometer survey, in June 2014, the share of satisfied people33 (84%) in Slovenia was 5 percentage points higher than in November 2013. In the EU overall life satisfaction also rose relative to the previous measurement (by 5 percentage points). The EU countries recorded an upturn in life satisfaction in comparison with the measurement in November 2013: in November, a decline in life satisfaction was recorded in seven EU Member States, in June 2014, only in three (Germany, Italy and Croatia), but these were the countries that had recorded an increase in the previous measurement in November 2013. Despite a significant decrease in satisfaction (-6 percentage points when it Figure 40: Life satisfaction, Slovenia and the EU average, June 2014 and the 10-year average (20 measurements) 31 The Gender Inequality Index (GII) ranges between 0 and 1, with higher values indicating higher gender inequality according to the above-mentioned criteria. Last year, the indicator was still experimental, so that this year's result is not comparable with last year's (0.080), when Slovenia was 8th among 187 countries. 32 The Gender-Related Development Index is defined as a ratio of the female to the male HDI: fHDI/mHDI. 33 The Eurobarometer survey measures life satisfaction with the following question: All things considered, how satisfied would you say you are with your life these days? The possible answers are: very satisfied, satisfied, dissatisfied and very dissatisfied. In the context of this analysis, the category of satisfied people includes very satisfied and satisfied people. Slovenia -Slovenia average 20 measurements ♦ EU 0.72 0.70 Source: Eurobarometer. Figure 41: Life satisfaction, EU countries, June 2014, 10-year average (20 measurements), and the difference between November 2013 and June 2014 June 201^ Jun 14-Nov 13 difference —10-year average/20 measurements 1.20 ........................... 1.00 0.60 0.20 -0.20 ,.......n..... Source: Eurobarometer. was last measured), Germany remains in the group of 22 countries where June's results reach, or exceed, the 10-year average. Slovenia ranks in the middle of the EU countries according to the latest measurement. The results of the survey also show a decline in life satisfaction in the new Member States and in those with significant public finance difficulties (Spain, Italy, Portugal, Greece). Expectations about the future also influence the evaluation of the present situation. Optimistic expectations,34 i.e. expectations that things will change for the better, tend to improve the estimate of the present situation. Pessimistic 34 In measuring 'optimism, we monitor the share of those expecting that things will improve. Table 18: Life satisfaction, evaluation of the situation and one-year expectations for different areas, EU and Slovenia, Oct 2008-Jun 2014, and the average of 12(11) measurements Oct. 08 Jun. 09 Nov. 09 Jun. 10 Nov. 10 May 11 Nov. 11 May 12 Nov. 12 May 13 Nov. 13 Jun. 14 Average (12/11 measurments) Overall satisfaction: All things considered, how satisfied are you with your life, very satisfied, fairly satisfied, fairly unsatisfied or very unsatisfied? (Very satisfied and fairly satisfied combined). EU 76 77 78 78 78 79 75 77 76 75 75 80 77 SLO 85 86 86 85 85 83 83 85 85 85 79 84 84 How do you evaluate.... (very good and good together) EU economy EU 33 23 29 22 26 30 18 19 19 21 28 31 25 SLO 55 32 31 31 31 37 17 27 26 25 34 44 33 Economy of your country EU 29 20 23 22 28 30 28 27 27 26 31 34 27 SLO 52 27 20 17 12 9 8 11 7 4 6 7 15 Employment situation in your country EU 28 13 13 15 19 24 21 21 20 19 20 23 20 SLO 35 11 8 8 5 4 5 5 3 2 3 5 8 Personal employment situation EU 56 52 54 N/A. 55 55 51 52 53 53 54 56 54 SLO 63 63 56 N/A. 58 55 53 52 57 56 51 57 56 Personal financial situation EU 64 65 64 64 64 65 N/A. 62 63 63 63 66 64 SLO 62 70 65 67 63 62 N/A. 56 61 55 53 65 62 What are your expectations for the next twelve months when it comes to... (the share of those who think that the next twelve months will be better) Life in general EU 24 27 26 24 26 26 21 23 22 23 25 27 25 SLO 22 27 24 23 20 20 16 18 16 16 19 24 20 Economy in your country EU 15 25 28 24 24 23 16 19 17 18 21 24 21 SLO 18 28 27 23 18 17 14 13 13 9 12 22 18 Employment situation in your country EU 13 20 22 22 23 24 15 18 16 17 20 24 20 SLO 13 25 23 19 15 15 13 10 11 7 12 19 15 Personal employment situation EU 18 19 19 18 19 19 16 16 17 17 18 20 18 SLO 14 16 14 17 12 13 11 10 11 12 11 13 13 Financial situation of your household EU 18 21 21 19 20 20 17 18 18 18 19 21 19 SLO 17 21 20 18 14 15 12 12 13 12 13 18 15 Source: Eurobarometer. expectations,35 i.e. expectations that the situation will change for the worse, on one hand, reduce satisfaction at the present time, because people feel that it will not last, while on the other, they increase it, as people tend to value more what they may lose in the future. In terms of optimistic expectations, Sweden, Ireland, the UK and Malta stand out with regard to the measurement in June and the previous measurement, as well as the 10-year average. In Slovenia, the share of optimists rose by 5 percentage points in June compared with the previous measurement (to 24%). Despite the increase, Slovenia remains in the group of countries36 with less than a quarter of optimistic respondents. The share of pessimists declined by 11 percentage points in Slovenia, to 15%. It also declined in the most pessimistic countries (Greece, Portugal, Cyprus). Figure 42: The shares of pessimists and optimists in the EU, June 2014 50 45 40 35 30 25 20 35 When measuring 'pessimism', we observe the share of those expecting a change for the worse. The category that measures the share of respondents expecting that things will stay the same is excluded, as it is not clear if the same means equally good or equally bad. 36 Apart from Slovenia, this group also includes the Czech Republic, Hungary, Austria, Germany, Greece, Bulgaria and Portugal. ■ Optimists I Pessimists wm Source: Eurobarometer. Note: Optimistic expectations - that things will change for the better; pessimistic expectations - that things will get worse. 15 10 5 0 People in Slovenia are fairly satisfied with their life in general, more satisfied than in the EU overall. Life satisfaction tends to be higher if people are able to meet their needs in the areas they value more. The areas deemed most important to Slovenians are health, work ('employment situation') and family ('personal employment situation/ household financial situation'). As shown by the last 12 measurements, people are more satisfied than in the EU overall with their personal employment situation, being also close to the EU average regarding satisfaction with their personal finances. They are also more satisfied than people in the EU regarding the EU economy. On the other hand, their satisfaction with the economy and the employment situation in Slovenia is below average, although the evaluations and expectations in these two areas have been rising from the lowest figures in May 2013 since November 2013 according to all 12 measurements. In both Slovenia and the EU, one-year expectations expressed in June this year exceed the average of the last 12 measurements in all areas. Structural changes in Slovenia's agriculture in 2000-2013 A more efficient use of production resources and a faster development of agricultural activity in Slovenia is impeded by the relatively unfavourable structure of agricultural production.37 In contrast to the EU, Slovenia is characterised by relatively small agricultural holdings with unfavourable age and education structure. The restructuring of the agricultural sector is thus the key challenge to agricultural policy in Slovenia (and in the EU). It should be addressed primarily by increasing the size of agricultural holdings in order to reduce land fragmentation, improving the age and education structure of managers and other farm labour force and increasing revenue, also by means of better equipment, higher specialisation of holdings and co-operation between farmers. The effects of these efforts can be monitored based on the relatively extensive statistical surveys of the structure of EU comparable agricultural holdings.38 With a decline in the total number of agricultural holdings, their average size with regard to the utilised agricultural land increases, while their average size measured by the number of animals remains roughly the same. According to the latest Farm Structure Survey in 2013, there were 72,400 agricultural holdings in Slovenia, using around 477 thousand hectares of agricultural area and breeding Figure 43: Growth in the number of agricultural holdings, utilised agricultural area and livestock units in 2000-2013 37 This chapter mainly deals with the size of agricultural holdings and labour force structure. 38 A regular statistical survey of all agricultural holdings is conducted every ten years and between these surveys intermediate sample surveys are carried out. In Slovenia, SURS has thus far carried out two complete farm structure surveys, in 2000 and 2010, as well as four sample surveys, the most recent in 2013. The survey covers only the "EU comparable agricultural holdings,"i.e. those satisfying the criteria of the EU comparable threshold. Agricultural holdings, right axis 90 95 90 .!Z H (D 85 80 75:^ 2000 2003 2005 2007 2010 2013 Source: SURS; calculations by IMAD. Note: UAA -utilised agricultural area;LSU - livestock units. Figure 44: Growth in the number and share of agricultural holdings by size, in 2000-2013 -Over 20 ha of UAA -Over 20LSU ♦ Over 20 ha UAA, right axis • Over 20 LSU, right axis 100 --- Below 20 ha of UAA --- Below 20 LSU - Below 20 ha UAA, right axis - Below 20 ha LSU right axis 105 60 ^^ 20 n o 0 -40 75 45 30 2000 2003 2005 2007 2010 2013 Source: SURS; calculations by IMAD. Note: UAA - utilised agricultural area; LSU - livestock units. around 400 thousand livestock units.39 Since the first survey in 2000, both the number of holdings and the number of animals had declined by 16% and 15%, respectively. The total utilised agricultural area decreased only by 2% in the analysed period, meaning that most of the agricultural land of the abandoned farms has been taken over by other holdings. An average agricultural holding was using 6.6 hectares of agricultural area and breeding 5.5 livestock units, 17% and 1% more per holding than in 2000, respectively. The share of larger agricultural holdings, i.e. those with more than 39 The livestock unit (LSU) is a reference unit which facilitates comparisons between different types of animals. 105 100 85 80 65 80 90 40 60 -20 0 Tabela 19: Agricultural holdings, their total and average sizes according the Farm Structure Survey in the 2000-2013 period 2000 2003 2005 2007 2010 2013 2013/2010 growth in % 2013/2000 growth in % Number of agricultural holdings 86,467 77,149 77,175 75,340 74,646 72,377 -3.0 -16.3 Agricultural enterprises 131 112 133 131 221 201 -9.0 53.4 Family farms 86,336 77,037 77,042 75,209 74,425 72,176 -3.0 -16.4 Utilised agricultural area, in thousand ha 485.9 486.5 485.4 488.8 474.4 477.0 0.5 -1.8 Agricultural enterprises 29.7 26.9 25.4 25.6 26.6 26.1 -1.9 -12.1 Family farms 456.2 459.6 460.0 463.2 447.9 450.9 0.7 -1.2 Livestock units, in thousand 470.5 456.2 421.6 433.4 421.6 399.3 -5.3 -15.1 Utilised agricultural area/holding, in ha 5.6 6.3 6.3 6.5 6.4 6.6 3.7 17.3 Livestock units/holding 5.4 5.9 5.5 5.8 5.6 5.5 -2.3 1.4 Source: SURS; calculations by IMAD. 20 hectares of utilised agricultural area and more than 20 livestock units, is rising. The share of overgrown and uncultivated agricultural land of holdings declined by more than half in the analysed period, to less than 5% of the total area, which, however, may also be due to the fact that the survey did not include the holdings that are abandoning the activity. The age and education structure of managers is unfavourable and it is improving only slowly. The average age of the managers of agricultural holdings, which is relatively high, did not change much in the analysed thirteen years. In 2013, it was 56, only a year lower than according to the previous survey. The education of managers, both general and professional, is relatively low and it is improving only slowly. In 2013, fewer than a third of managers had general upper secondary education, while fewer than a tenth had a higher education. As many as half of them still had only practical experience in farming and ran their farms without any formal agricultural education, but the share of these had declined by more Figure 45: Structure of farm managers by education in agriculture in 2000-2013 I- ■ Higher education 80 70 60 50 40