Slovenian Economic Mirror J imad Economic Analyses/December 2007 No. 12, Vol. XIII Slovenian Economic Mirror presents current macroeconomic developments as well as selected economic, social and environmental issues. The publication consists of articles, which present the main economic indicators, assess the realisation of the spring and autumn forecasts, and monitor implementation of economic policies (earnings, public finance, prices, competitiveness, etc.). The periodical is published monthly, except in September. This issue of Slovenian Economic Mirror was prepared by: Lejla Fajić (In the Spotlight, Gross Domestic Product), Jure Brložnik (International Environment), Jože Markič (Balance of Payments), Miha Trošt (Price Trends & Policy), Marjan Hafner (Money Market - Household Savings, Money Market -Loans), Tomaž Kraigher (Labour Market, Population of Slovenia, 2006-2007), Saša Kovačič (Earnings), Katarina Ivas (Manufacturing), Mojca Koprivnikar Šušteršič (Distributive Trade, Tourism), Barbara Ferk (Private Consumption and Household Indebtedness, Available and Allocated Assets of Households and Possession of Durable Goods, 2000-2005), Tanja Čelebič (Continuing Education). Director: Boštjan Vasle. Editor in Chief: Luka Žakelj. Translator: Tina Potrato. Language Editing: Translation and Interpretation Division of the Secretariat-General of the Government of the RS. Technical Editor: Ema Bertina Kopitar. Statistical Appendix, Data Preparation & Graphs: Bibijana Cirman Naglič, Marjeta Žigman. Distribution: Katja Ferfolja. Printed by: Tiskarna Štrok. Concept & Design: Sandi Radovan, Studio DVA. Circulation: 610 copies. Institute of Macroeconomic Analysis and Development Gregorčičeva 27, 1000 Ljubljana (+386 1) 478 10 12 fax: 478 10 70 Editor in chief: luka.zakeli@gov.si Translator: tina.potrato@gov.si Distribution: publicistika.umar@gov.si SEM can be found on the Internet at http://www.gov.si/aindex/. Publication is included in Ebsco Publishing Database and Internet Securities Database. © Institute of Macroeconomic Analysis and Development, 2007. The contents of this publication may be reproduced in whole or in part provided that the source is acknowledged. Contents Slovenian Economic Mirror IMAD No. 12/2007 p. 2 In the Spotlight 2007 was marked by expected historically highest economic growth; annual inflation reached 5.6% p. 3 International Environment High inflation in the euro area and the United States fuelled by food and oil price increases p. 4 Gross Domestic Product Exports and investment remained the main engines of economic growth in the third quarter p. 5 Balance of Payments The contribution of road vehicles to total growth of goods exports surged to 41.3% in the third quarter p. 6 Price Trends & Policy November's inflation determined by liquid fuel price increases p. 7 Money Market -Household Savings October witnessed the first monthly drop in household deposits in 2007 p. 8 Money Market - Loans Households are increasingly exposed to currency risk p. 9 Labour Market Favourable conditions on the labour market continue p. 10 Earnings Private sector earnings posted a high increase in October, partly due to extraordinary payments p. 11 Manufacturing A rebound in industrial production in October p. 12 Distributive Trades Value added growth exceptionally high also in the third quarter p. 13 Tourism Good results in the main tourist season p. 14 Private Consumption and Household Indebtedness Most current consumption indicators picked up in the third quarter p. 15 SELECTED TOPICS Continuing Education Participation in occupational programmes posted the largest increase in the period 2001/2002-2005/2006 p. 19 Available and Allocated Assets of Households and Possession of Durable Goods, 2000-2005 Differences in food and housing expenditure shares between households with the highest and lowest consumption widened in 2000-2005 p. 20-21 Population of Slovenia, 2006-2007 The population size has increased for the third consecutive year, mainly due to high net migration p. 22-23 Data: (pp. A 1-A 12), Main indicators (p. A 13), International Comparisons (pp. A 14-15), Graphs (pp. A 16-17). Selected indicators of current economic developments, change in % Latest Data Compared to the previous month same period of previous year latest data pre-latest data pre-pre latest data Industrial production (value based) X 9.8 8.2 7.8 8.6 Manufacturing X 9.6 9.5 9.0 9.9 Electricity, gas and water supply X 6.4 -9.5 -9.3 -9.5 Value of construction put in place, real terms X 13.1 23.4 26.0 30.5 Exports of goods (nominal terms)1 X 8.0 17.7 18.8 17.7 Imports of goods (nominal terms)1 X 5.6 20.2 20.2 20.3 Real effective exchange rate2 X 0.6 2.0 1.8 1.8 Gross wage per employee, real terms X 2.9 2.4 2.5 2.7 Total household savings in banks3, nominal terms X -0.1 11.4 11.5 11.4 General government revenue, real terms XI 1.5 4.5 4.5 3.6 Number of persons in paid employment X 0.6 3.5 3.5 3.5 Number of registered unemployed XI -1.6 -17.2 -17.6 -17.9 Number of job vacancies XI -23.2 7.9 7.6 5.7 Month current previous pre-previous Registered unemployment rate X 7.4 7.2 7.4 Month current cumulative annual4 Consumer prices XII 0.4 5.6 5.6 Producer prices (domestic market) XI 0.4 6.2 6.8 Sources of data: SORS, BS, ESS, estimates and calculations by IMAD. Notes: 1balance of payments' statistics; 2euro's exchange rate for Slovenia measured by relative consumer prices; the calculation of the effective exchange rate includes the currencies/prices of Slovenia's 17 trading partners (Austria, Belgium, Germany, Italy, France, Netherlands, Spain, Denmark, United Kingdom, Sweden, Czech Republic, Hungary, Poland, Slovakia, USA, Switzerland, Japan); weights are the shares of individual trading partners in Slovenian exports and imports of goods within manufacturing (5-8 SITC) in 2001-2003; exports are double weighted; 3the year-on-year growth rate is defined as the ratio between the stock at the end of the current month and the stock in the same month of the previous year; 4total in the last 12 months. In the Spotlight Slovenian Economic Mirror IMAD No. 12/2007 p. 3 Economic growth remained strong in the third quarter of 2007, while its structure was similar to the first half of the year. GDP growth in the third quarter totalled 6.3%, slightly more than in the second quarter. The main factors of economic growth were still exports, whose contribution to GDP growth increased further in the third quarter, and investment, although its contribution contracted somewhat. The growth of private and government consumption remained subdued despite a slight pick-up. Export growth in the third quarter was one of the highest in the last ten years. Economic activity in the EU remained fairly strong, as GDP growth remained at the level from the second quarter (2.5%, seasonally non-adjusted), but it was lower than in the first quarter of 2007 (3.4%). In some new EU member states, growth in the third quarter was even slightly above Autumn Forecast assumptions; similar results are expected at the annual level. At the end of the third quarter, Slovenian exports to the Czech Republic, Hungary and Poland already exceeded exports to these countries in 2006 as a whole (see p. 4). A strong boost to the growth of goods exports came from exports of road vehicles, which surged in the third quarter and accounted for over 40% of the nominal growth of goods exports (see pp. 5-6). Investment remains the main driver of domestic consumption. Its increase in the third quarter was somewhat lower than in the first half of the year, largely as a result of the low growth of investment in transport equipment, which was exceptionally high especially in the second quarter (over 50% in real terms), partly due to one-off purchases. The growth of private consumption picked up gradually over 2007, yet fell short of the 2006 figures. On the other hand, an improvement was indicated by most short-term indicators, which persisted at a significantly higher level than a year ago throughout the year. Purchases of durable and semi-durable goods were particularly on the rise, among them especially car sales, which is corroborated by their high imports and increased number of registrations (see pp. 6 and 13). The growth of value added stabilised at a high level. In construction and manufacturing, growth is gradually moderating from the high level attained. Favourable trends in market services continued, while the growth of value added in public services eased under the influence of developments in education and health care (see p. 5). The persistence of GDP growth at a high level in the third quarter and the preliminary data for the fourth quarter suggest that GDP growth in 2007 will be higher than we projected in the Autumn Forecast (5.8%). This is attributable to more favourable export trends and higher investment in construction than expected. Strong construction activity is also expected in the final quarter of 2007, partly due to favourable weather conditions. October data for manufacturing's output, the value of construction put in place and goods trade are already available, all showing robust growth rates. The growth of manufacturing's production value, which was modest in September in year-on-year terms (3.1%, real terms), rebounded in October to 12.8%. The largest increases in that month were recorded in the automobile and chemical industries (see p. 12). In construction, where according to seasonally adjusted data, activity reached its lowest level in six months in September, it also rebounded in October, notably in civil engineering and somewhat less in building construction, where a stronger moderation was already observed in the third quarter. The total value of construction put in place was a real 9% higher in October than in the same month of 2006. As trade with other EU countries accelerated, year-on-year growth of goods exports (up from 10.6% in September to 15.9% in October, nominal terms) and goods imports (up from 17.5% to 19.0%) also picked up (see p. 6). For the second year in a row, economic growth in Slovenia will thus be approximately twice as high as the estimated growth in the euro area (2.6%). The favourable labour market conditions that were present in the third quarter continued in October and November. Formal employment increased by 3.6% in the third quarter and continued to grow in October, when the number of employed persons was 3.7% higher than in October 2006. Employment surged in construction and market services; it also increased substantially in manufacturing after declining for several years. Following the seasonal increase in unemployment in October, the number of unemployed declined again in November. Compared with November 2006, it was 13.3% lower (see p. 10). October also saw the disbursement of the first extraordinary performance payments, i.e. 13th month payments and Christmas bonuses. October's payments may merely have been earlier than usual; however, it is also possible that their volume will be somewhat higher at the end of 2007 than estimated in the Autumn Forecast. The share of employees who received extra payments was the highest in financial intermediation; above-average shares were also recorded in industry and construction. In the first ten months of the year, the gross wage per employee increased by a nominal 6.6% in the private sector and by 4.1% in the public sector, where wages were again only partly indexed to inflation (see p. 11). Consumer prices increased by 5.6% in 2007. The inflation hike in 2007 that affected both Slovenia (from 2.8% to 5.6%) and other euro area countries (from 1.9% to 3.1%) was largely fuelled by higher prices of food and liquid fuels for transport and heating. The overall contribution of food price rises to inflation in Slovenia reached a high 2.2 p.p. last year, compared with 0.7 p.p. in 2006. Liquid fuel prices contributed 0.9 p.p. to last year's inflation (0.3 p.p. in 2006). In addition, the introduction of the euro at the beginning of 2007 is estimated to have added a further 0.3 p.p. Without these price increases, inflation in 2007 would have remained at a similar rate as in 2006. International Environment Slovenian Economic Mirror IMAD No. 12/2007 p. 4 Real growth GDP, % Q1 20071 Q2 20071 Q3 20071 2006 20072 20082 20092 USA 1.5 1.9 2.8 2.9 2.2 2.0 2.2 EMU 3.2 2.5 2.7 2.9 2.6 1.9 2.0 Hungary 2.6 1.6 1.2 3.9 1.8 2.6 3.8 Czech Republic 6.3 6.2 6.1 6.4 6.1 4.6 4.9 Poland 6.7 6.6 5.8 6.1 6.5 5.6 5.2 Economic growth in the euro area and the United States picked up in the third quarter of 2007; inflation increased appreciably in November. The third quarter saw a slight acceleration in GDP growth in the euro area and the United States (see table). However, the OECD estimates that the effect of the financial crisis will be especially noticeable in 2008, and it accordingly made downward revisions to its 2008 GDP growth forecasts for all member countries. Fuelled by galloping food and oil prices, year-on-year inflation in the euro area was 3.1% in November (and in December, according to preliminary estimates), the highest figure since May 2001, while the inflation rate in the United States was 4.3%. Thus, economies face potential lower GDP growth as a result of the subprime mortgage market breakdown in the United States, coupled with higher inflation. Therefore, the Fed cut its key interest rate by a further 0.25 p.p. in December, to 4.25%. The rate is now a whole percentage point lower than prior to the onset of the financial turmoil in August. Meanwhile, the ECB left its key exchange rate unchanged at 4.0%. Due to liquidity shortages on financial markets, five central banks (American, European, English, Canadian and Swiss) announced a coordinated measure in mid-December to satisfy short-term liquidity demand on more favourable conditions. The euro's appreciation against the dollar came to a halt in December, yet the average monthly exchange rate (1.4570 EUR/USD) was 10.3% higher than in December 2006. The average annual exchange rate in 2007 was 1.3705 EUR/USD, 9.2% more than in 2006. The significance of Hungary, the Czech Republic and Poland for Slovenia's foreign trade continued to increase in 2007. Their share in Slovenia's total exports jumped from 7.5% in 2006 to 9.0% in the first nine months of 2007, while the nominal value of exports in this period was already 3.2% higher than the value of total exports to these countries in 2006. Economic growth in the Czech Republic and Poland remained strong in the first three quarters of 2007, but is expected to moderate in 2008 and 2009. Although GDP growth in both countries slowed down quarter by quarter (see table), its annual rates will likely exceed our autumn assumptions. The two critical factors of economic growth in these two countries are investment, which has grown by approximately 20% in Poland for five consecutive quarters, and private consumption, supported by a substantial drop in unemployment and strong wage growth. In the Czech Republic, exports also remained strong (motor vehicles), whereas in Poland their growth eased off over the last two quarters. Import growth also remains high in both countries on the back of robust domestic demand. In the next two years, GDP growth will soften somewhat in both countries. In the Czech Republic, the moderation will reflect the projected weaker growth of private consumption due to the effect of announced fiscal measures on households' purchasing power (higher VAT and excise duties on tobacco, new environmental taxes). Lower GDP growth in Poland will be the result of the expected slowdown in investment growth. In both countries, inflation accelerated further in October and November due to escalating food and oil prices. Inflation is likely to remain high in the first half of 2008; in the Czech Republic due to the above fiscal measures, in Poland due to rising unit labour costs and the announced 20.0% minimum wage raise. In Hungary, GDP growth slowed further in 2007 as the growth of domestic demand remained subdued; a slight pick-up is expected in the next two years. Private consumption is negatively affected by cuts in social and health care transfers and the raising of VAT and administered prices. At the same time, cutting back on public investment programmes dampens investment growth. Economic growth is thus based solely on strong exports. Growth will gradually rebound in 2008 and 2009, when private consumption is expected to pick up gradually due to higher wage increases in 2007 and 2008, and particularly due to investment based on EU funds. Exports should continue to support GDP growth, yet this will depend on the effect of the financial turmoil on economic growth in Hungary's main trading partners. Graph: Forecast of quarterly year-on-year real GDP growth rates, in % Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Source of data: Eastern Consensus Forecasts (November 2007). Note: Q1 2007 - Q3 2007 actual data; Q4 2007 - Q4 2008 forecasts. Q3 2008 Q4 2008 Source of data: Eurostat, OECD. Notes: year on year, seasonally adjusted. Forecast OECD Economic Outlook (December 2007) Gross Domestic Product Slovenian Economic Mirror IMAD No. 12/2007 p. 5 Real year-on-year growth rates, in %1 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Gross domestic product 5.4 5.1 6.1 6.3 7.2 6.0 6.3 Private consumption 4.6 4.3 4.6 2.8 2.1 2.3 2.7 Government consumption 4.6 4.5 3.8 4.6 1.1 0.8 2.0 Gross capital formation 4.1 4.8 16.2 13.5 20.0 26.6 19.4 Gross fixed capital formation 4.7 4.7 11.0 12.3 21.2 21.8 17.7 Change in inventories and valuables2 0.0 0.1 1.4 0.7 0.4 1.2 0.8 Exports of goods and services 17.2 11.6 8.1 13.0 14.7 13.2 15.8 Imports of goods and services 15.6 10.7 10.3 12.3 14.1 16.9 17.4 Source of data: SORS. Notes: 1 data not seasonally adjusted. 2 Contribution to GDP growth, in percentage points. Economic growth remained strong in the third quarter of 2007, while its structure was similar to the first half of the year. GDP growth has remained above 6% since the third quarter of 2006, driven mainly by vigorous and stable growth of exports and investment. Backed by a supportive international environment, exports continued to grow at a vigorous pace in the third quarter thanks to a surge in road vehicles exports. According to comparable non-seasonally adjusted data, year-on-year GDP growth in the EU in the third quarter remained at the level of the second quarter (2.5%), while it accelerated slightly quarter on quarter. The increase in goods and services exports in the third quarter was higher than in the second quarter, and the growth of services exports, which topped the 2006 figures throughout 2007 on the back of buoyant exports of other services, was even slightly higher than the growth of goods exports. Among individual SITC product groups, the higher year-on-year nominal growth of goods exports in the third quarter compared with the second quarter was largely underpinned by increased exports of road vehicles (approximately 74% of which were cars), which accounted for more than 40% of the nominal increase in goods exports in the third quarter. Further increases were recorded in export growth of medical and pharmaceutical products, and electrical machinery and equipment, while export's growth of most other product groups eased in the third quarter (see also p. 6). Despite stronger private and government consumption, investment remains the main engine of domestic consumption. After gross fixed capital formation increased by more than 20% in real terms in the first half of the year, its growth declined in the third quarter, largely due to lower growth of investment in machinery and equipment and partly due to weaker growth of construction investment. Within investment in machinery and equipment, the drop in real growth was particularly sharp in transport equipment (from 53.2% in Q2 to 7.6%), while investment in other equipment and machinery did not slow significantly and grew by 10-11% in all three quarters. The contribution of the change in inventories to GDP growth has also been high since the third quarter of 2006. The growth of private consumption picked up progressively in 2007 but remained well below the 2006 figures (see p. 15). Government consumption growth also remained relatively low, although it increased somewhat. Imports of goods and services posted strong growth also in the third quarter. That import growth remained at a high level from the beginning of the year is attributable to strong import growth of intermediate goods and machinery and equipment, and to imports of road vehicles (cars comprising around 50%; the rest includes auto parts for the domestic car industry). Imports of road vehicles contributed almost 30% to the nominal increase in goods imports in the second and third quarters, compared with 15% in the first quarter (see p. 6.). Lower growth of value added in the third quarter primarily reflected a decline in growth in manufacturing and construction. Year-on-year growth of value added (VA) in the third quarter totalled 6.2% (6.6% in Q2 and 7.2% in Q1). A slowdown in manufacturing and construction was already indicated by current data. Although VA growth in construction was appreciably smaller (by 10 p.p.) than at mid-year (deceleration was stronger in the construction of buildings than in civil engineering), construction remained the fastest-growing industry (16.8%). Meanwhile, manufacturing still made the largest contribution to GDP growth (1.7 p.p.) despite a gradual deceleration of activity. Market services continued to post favourable trends. The growth of VA accelerated further in distributive trades (G; see p. 13), transport (I) and business services (K), while remaining at roughly mid-year levels in other activities. Somewhat lower increases were recorded in public services (L-P), where particularly education (M) and health care (N) have been witnessing a moderation in VA growth or its persistence at low levels amid low employment growth rates for a while. Graph: Structure of real GDP growth 15 S 18 15 12 9 ■ 6 3 0 -3 -6 -9 -12 IMMMI Imports of goods and services '......i Exports of goods and services 5 4 S O 3 ra Q_ 2 Q 2 CD 1 Q1 Q2 Q3 Q4 Q1 2006 2007 Source of data: SORS; calculations by IMAD. Q2 Q3 Changes in inventories and valuables Gross fixed capital formation I Governmentconsumplion a Private consumption -GDP (right axis) 8 7 6 0 Balance of Payments Slovenian Economic Mirror IMAD No. 12/2007 p. 6 Balance of payments, I-X 2007, EUR m Inflows Outflows Balance1 Balance, I-X 2006 Current account 21,634.9 22,588.4 -953.4 -398.5 Trade balance (FOB) 16,553.2 17,703.0 -1,149.8 -673.4 Services 3,531.4 2,499.3 1,032.0 791.0 Factor services 858.5 1,414.7 -556.2 -346.4 Unrequited transfers 691.8 971.4 -279.5 -169.9 Capital and financial account 9,690.9 -8,509.5 1,181.4 519.6 Capital account 202.5 -228.1 -25.6 -42.7 Capital transfers 201.7 -225.2 -23.5 -42.7 Non-produced, non-financial assets 0.8 -2.9 -2.2 0.0 Financial account 9,488.4 -8,281.4 1,207.0 562.3 Direct investment 787.2 -843.7 -56.5 -100.6 Portfolio investment 1,053.3 -2,908.1 -1,854.8 -831.8 Financial derivatives 0.0 -23.7 -23.7 -18.4 Other long-term capital investment 7,552.4 -4,505.9 3,046.5 694.4 Assets 15.5 -4,462.0 -4,446.5 -1,589.0 Liabilities 7,536.9 -43.9 7,493.0 2,283.4 International reserves (BS) 95.5 0.0 95.5 818.6 Statistical error 0.0 -228.0 -228.0 -121.0 Source of data: BS. Note: 1a 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. In the first ten months of 2007, the current account deficit increased by EUR 554.9 m, year on year, largely as a result of the growing trade balance deficit. The latter increased by EUR 476.4 m, year on year (see table). The surplus in the services balance grew considerably, primarily as a result of higher net receipts from travel. The deficit in factor incomes widened, mostly due to the net interest payments of domestic commercial banks. Within the current transfers balance, the deficit of other sectors (other transfers, insurances, workers' remittances) and of the government sector increased. According to data for the first three quarters of 2007, the growth of road vehicles exports picked up quarter by quarter. Year-on-year growth increased from 17.4% in the first quarter to 60.7% in the third quarter, while the share of these exports in total goods exports increased from 15.2% to 16.1%. In addition to road vehicles, exports of general industrial machinery, medical and pharmaceutical products, electrical appliances and machinery, metal products, and iron and steel also made significant contributions to the overall growth of goods exports, albeit with different quarterly dynamics (see graph). These groups of industrial products contributed as much as two thirds to the 17.2% overall increase in goods exports in the first three quarters of 2007. Looking at goods imports, the growth of road vehicles imports was similarly highest in the third quarter. A notable boost was observed in the second quarter, when year-on-year growth of road vehicles imports reached 51 %, more than double the rate from the first quarter, only to accelerate further in the third quarter, to 55.7%. The share of road vehicles in total goods imports increased from 12.3% in the first quarter to 12.9% in the third quarter. The overall growth of goods imports in the first nine months of 2007 (19.2%) was largely underpinned by the same SITC industrial product groups as in exports. The latter indicates a high rate of intra-industry trade. The high nominal increase in imports was primarily underpinned by quantity flows of exports and by gross fixed capital formation. At the year-on-year level, imports of machinery and equipment also posted an increase, suggesting that the production capacity of Slovenian firms is growing. Year-on-year growth of services exports strengthened further in the third quarter. The 22% nominal growth was chiefly based on export growth of certain services based on knowledge and higher value added (merchanting, various business, professional and technical services, and financial services). The booming growth of these services surged from 59.6% in the first quarter to 62.8% in the third quarter. The growth of transport services exports also posted an increase, from 12.8% to 19.9%. The growth of travel exports witnessed a gradual decline (from 18.0% to 14.4%), but remained at a much higher level than in 2006. In the first three quarters of 2007, total exports of services increased by a nominal 21.8%, year on year. Imports of services still increased at a strong pace, but they nevertheless fell short of exports. At the year-on-year level, imports of services increased by 17.1% in the third quarter. The overall increase was largely underpinned by various business, professional and technical services (their growth surged from 12.7% to 61.7% over the three quarters). The dynamics of transport services imports (19.5% in Q1 and 21.0% in Q3) were similar to that of goods imports. Imports of travel declined in the third quarter (-1.2%; after 9.6% growth in Q1). In the first three quarters of 2007, total imports of services increased by a nominal 17.1%, year on year. Graph: Contributions of individual product groups to the total nominal increase in goods exports, in percentage points 20 x ti15 h 10 Q1 2007 Q2 2007 Source of data: SORS; calculations by IMAD. Q3 2007 □ Other □ Road vehicles □ Electrical machinery, apparatuses and appliances □ General industrial machinery n.e.s. □ Metal products ■ Steel and iron □ Medical and pharmaceutical products 5 0 Price Trends and Policy Slovenian Economic Mirror IMAD No. 12/2007 p. 7 Price indices 2006 2007 XII 2006/ XII 2005 O (I 06-XII 06)/ O (I 05-XII 05) XI 2007/ X 2007 XI 2007/ XI 2006 O (X 06-XI 07)/ O (X 05-XI 06) Consumer prices (CPI) 102.8 102.5 100.9 105.7 103.4 Goods 102.1 102.0 101.2 106.0 102.9 Fuel and energy 103.9 108.2 104.0 110.3 102.6 Other 101.7 100.5 100.6 105.0 103.0 Services 104.3 103.4 100.3 105.0 104.5 Consumer prices (HICP) 103.0 102.5 100.9 105.8 103.5 Administered prices1 102.1 105.8 102.9 107.8 102.3 Energy 103.7 108.0 104.2 110.1 102.2 Other 97.9 100.2 100.0 102.3 102.6 Core inflation: - trimmean 102.7 102.8 100.7 103.4 102.2 - excluding food & energy 102.0 101.2 100.4 104.0 102.5 Producer prices: - domestic market 102.8 102.3 100.4 106.8 105.1 - EMU 106.3 102.6 100.0 101.1 105.5 Consumer prices in the EMU 101.9 102.2 100.5 103.1 102.0 Sources of data: CPI, HICP, IPI: SORS; administered prices and core inflation: IMAD estimate; MUICP in the EU: Eurostat (provisional data) and IMAD recalculation. Note: figures are not directly comparable between years due to the annual changes of the administered prices index. Inflation increased further in November. Compared with October, year-on-year inflation was 0.6 p.p. higher at 5.7%, while prices at the monthly level increased by 0.9%. The prices of liquid fuels for transport and heating contributed more than half to this increase. Although the current high inflation is transitory, since it is largely based on several one-off external shocks, inflationary expectations are growing precariously. November's inflation was characterised by increases in liquid fuel prices. The prices of liquid fuels for transport and heating increased by an overall 6.6% in November and contributed 0.5 p.p. to monthly inflation. The total contribution of these prices to inflation in the first eleven months of 2007 was 0.9 p.p. (0.3 p.p. in 2006). In addition to liquid fuels, November also witnessed an expected price increase in clothing and footwear (by 2.9%), which added a further 0.2 p.p. to inflation. On the other hand, food prices remained unchanged after having increased for several months. Inflationary expectations increased as well towards the end of the year. In the first eleven months of 2007, prices in Slovenia increased by 5.2%, compared with the 2.3% increase from the same period of 2006. Prices of food and liquid fuels for transport and heating remain the main factors behind the accelerated inflation in Slovenia and other EMU countries. Combined, they contributed approximately one half to domestic inflation, and slightly less to November's 3.1% year-on-year inflation in the euro area. These trends reflect external price shocks, which are partly related to geopolitical and weather-related factors, in addition to supply and demand pressures. Any external shock has a short-term effect on the overall domestic price growth. However, despite the transitory nature of these two factors and hence of the current high inflation, a series of successive external price shocks may keep inflation at a higher level for a longer period of time, which may in turn put an upward pressure on domestic inflationary expectations. This development is evidenced by SORS survey data, which show that most consumers expect prices to continue growing at the current rate in the future. If such expectations were to be incorporated into wage formation mechanisms in the corporate sector (adjusting wage growth to measured consumer price growth), domestic inflation would become entrenched and the process of its reduction to the equilibrium level (around 3%) would take a long time. Domestic producer prices increased in November. Producer prices on the domestic market increased by 0.4% in November and by 6.2% in eleven months. The SORS recorded the largest increase (13.3%) in this period in the price of energy (electricity), which was also the main contributor to the overall increase in producer prices. The prices of raw materials increased by 6.7%, of consumer goods by 4.6%, and of investment by 1.0%. Over the same period, domestic producer prices on foreign markets increased by 0.3%, while they decreased by 0.2% from October to November. Graph: Share of surveyed persons expecting that inflation will remain at the present level in the future 50 45 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 06 07 Source of data: SORS. 40 % 35 30 25 20 Money Market - Household Savings Slovenian Economic Mirror IMAD No. 12/2007 p. 8 Household savings in banks and in mutual funds managed by domestic administrators EUR m, nominal Nominal growth rates, in % 31. XII 2006* 31. X 2007 31. X 2007/ 30. IX 2007 31. X 2007/ 31. XII 2006* 31. X 2007/ 31. X 2006* Total savings in banks 11,451.3 12,243.1 -0.1 6.9 11.4 Domestic currency savings 7,181.3 11,847.4 0.0 N/A N/A Overnight deposits1 3,730.9 5,203.6 -4.0 N/A N/A Short-term deposits 2,558.1 4,709.6 4.2 N/A N/A Long-term deposits 677.2 1,233.4 -0.4 N/A N/A Deposits redeemable at notice 215.0 700.8 4.9 N/A N/A Foreign currency savings 4,270.0 395.7 -2.5 N/A N/A Overnight deposits1 1,794.3 153.6 -5.7 N/A N/A Short-term deposits 1,877.1 175.9 -1.5 N/A N/A Long-term deposits 474.4 43.6 0.0 N/A N/A Deposits redeemable at notice 124.2 22.6 9.9 N/A N/A Mutual funds 1,967.3 2,967.1 1.8 50.8 70.1 Source of data: Monthly Bulletin of the BS, SMA (Securities Market Agency); calculations by IMAD. Notes: demand deposits; *due to the transfer of euro loans to domestic currency loans, data from previous years are not comparable with data for 2007, and calculations of growth rates are therefore meaningless. After the moderation in monthly growth rates of household deposits in the previous two months, their volume declined in October for the first time in 2007. Such dynamics were the result of a decrease in foreign currency deposits, which contracted for the fifth consecutive month, whereas the volume of euro deposits stagnated for the first time in 2007. Nevertheless, year-on-year growth of household deposits in banks remained at approximately the same level for the third month in a row, while the increase in the first ten months of 2007 topped the comparable increase from 2006 more than twice. Total net flows in the ten months to October thus amounted to EUR 791.9 m and were 1.2 times higher than in the comparable period of 2006. In terms of maturity structure, time deposits, which increased for the seventh consecutive month, continued to enjoy somewhat stronger growth. Deposits redeemable at notice still recorded the highest value of net flows in September (EUR 384.2 m in the first ten months). In October they were displaced by short-term deposits, which posted a monthly net inflow of EUR 185.6 m and whose interest rate also rose somewhat more in the last few months. Based on data of the Bank of Slovenia, we therefore estimate that demand deposits, which are more liquid, were partly transferred to short-term deposits. In the first ten months of the year, time deposits thus increased by 16.2%, compared with their 4.2% increase in the same period of 2006. After the moderation in the third quarter, net inflows into mutual funds rebounded in October despite the slightly lower monthly return. Their monthly value was approximately at the level of the ten-month average. In the ten months to October, they amounted to EUR 422.2 m, which is 3.6 times more than in the comparable period of 2006 and corresponds to a good half of the net inflows of household deposits in banks. Almost 85% of total net inflows were invested into more risky stock mutual funds; the share of balanced funds also exceeded 10%, whereas investment in other types of funds was much lower. October's monthly increase in mutual fund assets reached its lowest level in the last eight months, largely as a result of lower return rates, which are mainly attributable to the international financial turmoil. In the first ten months of 2007, the volume of assets in mutual funds increased by more than one half. Despite high growth rates, the savings invested in mutual funds in Slovenia are still relatively small - approximately EUR 1,500 per inhabitant, whereas the amounts in more developed countries can be several times higher. Graph: Dynamics of interest rates on time deposits 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 inmmmmmmmcDCDCDcDtDcDCDcDCDCDCDCDi-^i^i^i-^i^i-^i^ o o o o o o o < » o o o o o o o o y C 3 Ö- Q- > i U ^ 3 (D £ O : -J < tO O z Source of data: BS. < » o Time deposits up to 1 year Time deposits over 1 and up to 2 years Deposits redeemable at notice announced up to 3 months in advance Deposits redeemable at notice announced over 3 months in advance % Money Market - Loans Slovenian Economic Mirror IMAD No. 12/2007 p. 9 Domestic bank loans Nominal amounts, in EUR m Nominal loan growth, in % 31. XII 2006* 31.X 2007 31. X 2007/ 30. IX 2007 31. X 2007/ 31. XII 2006* 31. X 2007/ 31.X2006 Loans total 20,193.3 25,773.6 2.5 27.6 32.3 Domestic currency loans 7,457.5 24,039.1 2.3 N/A N/A Enterprises and NFI 4,066.8 17,831.8 2.5 N/A N/A Households 2,896.4 5,688.5 1.7 N/A N/A Government 494.3 518.9 1.4 N/A N/A Foreign currency loans 12,735.8 1,734.5 5.3 N/A N/A Enterprises and NFI 10,091.3 799.2 5.8 N/A N/A Households 2,484.3 918.1 5.0 N/A N/A Government 160.1 17.2 -0.2 N/A N/A Household loans by purpose 5,380.7 6,606.6 2.1 22.8 26.4 Consumer credits 2,286.6 2,684.5 1.6 17.4 19.9 Lending for house purchase 1,955.8 2,550.3 2.5 30.4 36.8 Other lending 1,138.3 1,371.8 2.5 20.5 22.1 Source of data: BS Bulletin, calculations by IMAD. Notes: NFI - non-monetary financial institutions; *due to the transfer of euro loans to domestic currency loans, data from previous years are not comparable with data for 2007, and calculations of growth rates are therefore meaningless. The borrowing of non-banking sectors from domestic banks continues to increase. After September's stagnation, the overall year-on-year increase in the volume of loans rebounded to its highest value since comparable data have been available (since 2005). Borrowing by enterprises, NFI and households remains the main contributor to growth. The government recorded net borrowing from domestic banks in October; however, since it posted net repayment of such loans in the previous months, its contribution to overall year-on-year growth in October was negative. While borrowing in the form of both euro and foreign currency loans picked up, the ratio between their net flows remained relatively stable: euro loans accounted for roughly 85% of total net flows. In the first ten months of 2007, banks recorded net lending to domestic nonbanking sectors in the amount of EUR 5,580.3 m, which is 66.9% more than in the comparable period of 2006. The volume of corporate borrowing rebounded somewhat in October. The growth of loans for other purposes strengthened appreciably to total 81.7%, year on year. This group of loans includes loans granted to finance takeovers of other companies. Working capital loans also posted slightly higher growth, whereas the growth of investment loans moderated for the second month in a row (42.1%). The net flows of loans granted to enterprises and NFI in the first ten months of 2007 amounted to EUR 4,472.8 m, 82.5% more than in the comparable period of 2006. The growth of household loans remained stable in October (see graph). A somewhat greater divergence in the structure of loans by purpose was observed in consumer loans, as their year-on-year growth rate climbed to 19.9%. The growth of loans for other purposes also picked up, while the volume of housing loans continued to moderate gradually and was 6.2 p.p. lower than at the end of 2006. Such dynamics were primarily the result of the high base, since the net flows of these loans in the first ten months of 2007 were almost one fifth higher than in the comparable period of 2006. Households are more exposed to currency risk than enterprises and NFI, since net flows of foreign currency loans, which are more favourable in terms of interest, account for approximately one third of total net household borrowing. Their share in the total volume increased by 3.5 p.p. in the ten months to October to total 13.8%. The net flows of household deposits achieved a value of EUR 1,225.9 m in the first ten months, exceeding the comparable value from 2006 by almost 30%. Although Slovenia exceeds the average growth of loans in the EMU more than threefold, it has been slow to approach the volume of the non-banking sector's indebtedness in the EMU due to its relatively low base. In 2006, Slovenia's value of loans as a share of GDP was slightly more than half that of the EMU (66.3% over 128.9%). Assuming that the year-on-year growth of loans remained unchanged until the end of 2007 both in Slovenia and in the EMU, this gap would narrow to approximately 40% in 2007. Graph: Year-on-year growth rates of domestic banks loans to domestic non-banking sectors 40 35 30 25 20 15 10 / -----»s___ / / ^^-H^r-^er^ * * * ' Household loans O ■ Loans to enterprises and NFI ' —*— Total --------- Government loans (right axis) -10 -20 -30 -40 -50 -60 to o o Source of data: SORS, calculations by IMAD. 0 % % Labour Market Slovenian Economic Mirror IMAD No. 12/2007 p. 10 Selected labour market indicators Thousands of people Growth, in % I-XII 2006 X 2006 XII 2006 X 2007 X 2007/ IX 2007 I-X 2007/ I-X 2006 O 2006/ O 2005 Registered labour force (A=B+C) 910.7 915.0 911.3 934.0 0.9 1.5 0.6 Persons in formal employment' 824.8 833.7 833.0 864.5 0.6 3.5 1.4 in enterprises and organisations 675.1 681.6 681.7 705.2 0.7 3.0 1.3 by those self-employed 66.5 68.5 67.5 71.8 0.5 5.2 1.7 self-employed and farmers 83.3 83.6 83.8 87.5 -0.3 5.8 2.1 Registered unemployed 85.8 81.3 78.3 69.5 4.3 -17.6 -6.6 women 47.0 44.9 42.6 38.0 3.4 -17.2 -4.9 aged over 40 39.7 38.2 37.7 36.1 -0.4 -7.0 -0.9 unemployed more than 1 year 41.9 41.0 39.7 35.3 0.7 -12.9 -3.6 Rate of reg. unemployment (C/A), in % 9.4 8.9 8.6 7.4 - - - male 8.9 7.2 7.1 6.0 - - - female 12.0 11.0 10.5 9.2 - - - Job vacancies 19.0 19.5 15.9 24.4 5.7 7.6 12.3 for a fixed term, in % 75.3 77.9 76.4 76.4 - - - Number of persons hired 13.0 14.7 9.1 18.2 -0.9 1.8 13.8 lower education 3.9 4.1 2.6 4.9 2.8 4.7 19.4 secondary education 7.1 8.6 5.2 10.6 -2.4 0.6 13.8 tertiary education 2.0 2.0 1.3 2.7 -3.0 0.6 4.3 Sources of data: SORS, ESS, calculations by IMAD. Note: 'persons in employment according to administrative sources. The labour market continues to enjoy favourable trends. October's employment growth rate remained at the September level (according to seasonally adjusted data, it was even higher). The largest increase (1.4%) was recorded in business services, while construction again posted an over 1% growth rate, as did distributive trades. With a higher number of unemployed, the registered unemployment rate increased to 7.4% due to the regular inflow of secondary school graduates in the autumn. The number of registered unemployed declined in November, although the drop was relatively smaller than in November 2006. The number of employed persons surged by 3.7% in October 2007, year on year. This increase was largely underpinned by the strong employment growth in construction, where 12.1% more workers were employed in October 2007 than in October 2006. Most newly hired construction workers were foreigners. Foreign workers are also finding work in occupations in shortage within manufacturing, transport, trade, and hotels and restaurants. In December, the government therefore had to raise the work permit quotas for foreign workers for the second time in 2007, this time to 29,500. Favourable trends on the labour market are also corroborated by the labour force survey results. The number of persons in employment according to the survey rebounded in the third quarter by 3.3%, year on year, i.e. slightly less than according to the statistical register of employment (3.6%). The survey does not cover foreign workers employed in Slovenia, whose number increased significantly in 2007. According to the SORS survey, the number of employees saw the largest increases among workers hired through student job agencies, unpaid family members, and persons employed by entrepreneurs. On the other hand, the number of unemployed according to the survey declined by 11,000 or 19.0%, year on year, while the survey unemployment rate fell to 4.5%, an all-time low. The male unemployment rate (3.7%) was higher than in the second quarter (see graph), but it was still much lower than the female unemployment rate (5.4%). Following the seasonal increase in October, the number of registered unemployed decreased by 1.6% in November to total 68,355. A total of 4,269 employees lost work (183 fewer than in October and 687 fewer than in November 2006), while 4,102 unemployed persons were hired (171 fewer than in October and 882 fewer than in November 2006). For reasons other than employment (including transfers between registers), the number of unemployed persons declined by 2,540 (1,324 fewer than a year ago). More than half of this outflow was due to exits to education, retirement or other inactivity. The number of vacancies and persons hired declined in November. There were 18,716 of the former, which is 23.2% fewer than in October, and 13,590 of the latter, or 25.5% fewer than in October. While this decrease was seasonal, it was much more pronounced in 2007 than in previous years. Coupled with the declining number of unemployed who found work, this could indicate that the labour market may be cooling. Graph: Quarterly survey unemployment rates in 2001-2007, as a % of persons in employment Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2001 2002 2003 2004 2005 2006 2007 Source of data: SORS. B C D E F Earnings Slovenian Economic Mirror IMAD No. 12/2007 p. 11 Gross wage per employee, growth index Wages in In nominal terms In real terms1 EUR X 07/ X 07/ I-X 07/ X 07/ X 07/ I-X 07/ X 2007 IX 07 X 06 I-X 06 IX 07 X 06 I-X 06 Gross wage per employee, total 1,303.92 103.6 106.6 105.7 102.9 101.4 102.4 Private sector (activities A-K) 1,238.12 104.8 108.2 106.6 104.1 102.9 103.3 A Agriculture 1,109.60 106.2 107.9 107.3 105.5 102.6 104.0 B Fisheries 1,231.36 123.3 130.6 107.0 122.4 124.2 103.3 C Mining and quarrying 1,628.46 105.3 109.5 105.1 104.6 104.2 101.9 D Manufacturing 1,151.30 105.3 107.9 106.4 104.6 102.7 103.1 E Electricity, gas, and water supply 1,688.65 106.3 111.1 105.2 105.6 105.7 101.9 F Construction 1,091.46 105.0 106.7 106.5 104.3 101.6 103.2 G Distributive trades 1,176.17 103.0 107.1 107.6 102.3 101.9 104.2 H Hotels and restaurants 957.70 104.5 107.6 105.2 103.8 102.4 101.9 I Transport, storage & communications 1,377.17 104.2 106.6 105.7 103.4 101.4 102.4 J Financial intermediation 1,972.54 108.7 113.9 107.8 107.9 108.3 104.5 K Real estate, renting, business services 1,379.00 103.6 108.7 106.6 102.9 103.4 103.3 Public services (activities L-O) 1,500.26 100.7 103.3 104.1 100.0 98.3 100.9 L Public administration 1,552.53 100.9 105.9 104.8 100.2 100.8 101.5 M Education 1,560.18 100.3 102.3 104.3 99.6 97.3 101.0 N Health and social work 1,404.34 100.9 102.1 103.3 100.2 97.1 100.1 O Other social and personal services 1,420.78 101.0 103.0 103.6 100.3 98.0 100.3 Source of data: SORS and IMAD calculations for the private sector and public services. Note: deflated by the consumer price index. In October the gross wage per employee increased by 3.6% in nominal terms and by 2.9% in real terms (consumer prices increased by 0.7%). While an increase was expected due to two working days more, the growth rate was higher than expected. According to the SORS, October's earnings already included some extraordinary payments for performance (13th month payments and Christmas bonuses). The effect of extra payments contributed one percentage point to wage growth. The longer working month had the strongest effect on the growth of gross earnings in the private sector (A to K), which totalled 4.8% in nominal and 4.1% in real terms. This increase was partly underpinned by extraordinary payments, which were only made in the private sector. The largest increase in gross wages, by a nominal 5.3%, was recorded in the industry and construction group (C, D, E, F), which is most sensitive to the number of working days in a month. Also above average (2.9%) was the share of employees in this group who received extraordinary payments (approximately 4.3%). Production services (G, H, I) posted the smallest increase in gross earnings (3.6%), which was fairly even across the activities in this group. The gross wage per employee in business services (J, K) increased by a nominal 5.1% on average; within that, a much higher increase was recorded in financial intermediation, which also posted the highest share of employees who received extraordinary payments (10.6%). The gross wage in public services (L to O) increased by a nominal 0.7% in October, remaining at the September level in real terms. Except in other community, social and personal services (O), which largely comprises private sector activities, there were no extraordinary payments in this group. October's monthly increase in the public sector was primarily due to the effect of promotions. In the first ten months of 2007, the gross wage per employee reached 5.7% year-on-year nominal growth. Earnings in the private sector increased more (by 6.6%) than those in the public sector. Lower growth of earnings in public services (4.1%) was largely due to only partial indexation of wages to inflation. October's payments for performance (13th month's payments and Christmas bonuses) may merely have been earlier than usual; however, it is also possible that the volume of these payments will be slightly higher at the end of 2007 than estimated in our Autumn Forecast due to pressures from trade unions. This could also result in a slightly higher increase in the gross wage per employee in 2007 than estimated in the Autumn Forecast, although it should still be sustainable in macroeconomic terms. Graph: Nominal gross wage per employee by groups of activities Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 06 07 Source of data: SORS, calculations by IMAD. Manufacturing Slovenian Economic Mirror IMAD No. 12/2007 p. 12 Selected economic indicators Growth rates, in % X 2007/ IX 2007 X 2007/ X 2006 I-X 2007/ I-X 2006 I-XII 2006/ I-XII 2005 Production value1 9.6 12.8 9.5 6.5 - highly export-oriented industries2 10.6 26.0 17.0 7.6 - mainly export-oriented industries3 8.7 9.0 7.9 8.5 - mainly domestic market-oriented industries4 10.7 5.1 3.7 0.8 Average number of employees 0.4 0.7 1.0 -1.7 Labour productivity 9.2 12.0 8.4 8.3 Level of inventories5 -0.4 10.0 8.3 2.1 Turnover5 9.8 12.6 8.7 5.2 New orders5 -2.5 8.7 11.4 6.7 Industrial producer prices (domestic market) 0.8 4.8 4.1 2.3 - producer prices/inflation 0.4 1.3 1.1 -0.2 Source of data: SORS; calculations by IMAD. Notes: Veal growth calculated on the basis of data on production value - SORS' recalculation with the IPI (provisional data); Manufacturing industries (DG, DK, DM) which have, according to data on Slovenian commercial companies from the AJPES, earned over 70% of their average net revenue from sales on foreign markets in the last three years on average; Manufacturing industries (DB, DC, DD, DH, DJ, DL, DN) which have earned 50-70% of their average net revenue from sales on foreign markets in the last three years on average; "manufacturing industries (DA, DE, DF, DI) which have earned less than 50% of their average net revenue from sales on foreign markets _in the last three years; 5real growth._ The growth of manufacturing industrial production reaccelerated in October. According to the SORS' preliminary data, the increase in comparison with October 2006 totalled 12.8%, and 10.5% if data are adjusted for working days. The seasonally and working-day adjusted growth was among the highest in the first ten months of 2007. Thus, production regained momentum after two months of softening. In the first ten months on average, real production growth reached a high 9.5%, and the year-end result will therefore likely exceed even the booming 2000 figure. Production growth in October was driven by technologically more advanced industries, while employment was underpinned by medium-low technology industries. The car and chemical industries posted the highest increases in October (over 30% y-o-y). The manufacture of electrical and optical equipment (up 17.3%) also contributed significantly to October's increase, while the contribution of the metal industry, i.e. the largest manufacturing sub-industry, has been contracting for several months (after a boom that lasted for more than a year, its year-on-year growth was below 2% for the second month in a row). However, the metal industry made the largest contribution to the extensive hiring in the sector. Compared with September, the number of employees in manufacturing industries increased by 946. Within that, 522 were hired in the metal industry (the majority in the manufacture of metal products, and fewer in the manufacture of metals). Favourable employment trends were also observed in the manufacture of rubber and plastic products, where 275 new workers were hired from September. While turnover increased on all markets, inventories are also relatively high. October witnessed above-average monthly turnover growth on both domestic and foreign markets. Compared with October 2006, manufacturing firms generated a 10.5% higher turnover on the Slovenian market and 13.7% higher turnover on foreign markets. On the other hand, October also recorded relatively high inventories, which have persisted at high levels since the spring. The latter is partly linked to manufacturing's favourable production activity, since the level of inventories per product unit is currently not worrisome. Nevertheless, inventories have, on balance, been increasing at a somewhat faster pace than production since May. If this trend were to continue in the coming months, this could indicate that firms are unable to realise the planned sales levels. The confidence indicator in manufacturing remained unchanged in December. According to seasonally adjusted data, the share of surveyed firms expecting an improvement in the business climate topped the share of those expecting a deterioration by 9 p.p. Although this is one of the lowest values recorded in the last 18 months, it remains well above the long-term average. Graph: Manufacturing industrial production 155 145 il 135 & 125 115 105 cd cd cd cd cd cd cd cd cd cd cd cd o o o o o o o o o o o o o o o o o o o o o o c ro -q 0 ll_ ro s < ^ ro s c u —J "5 —j o) 3 < o. 0 co 's o > o z o 0 q c ro —j 0 ll_ ro s < ^ ro s c u —j S o. 3 < o. 0 co 's o Source of data: SORS; IMAD's calculations using the Tra mo-Seats method. Distributive Trades Slovenian Economic Mirror IMAD No. 12/2007 p. 13 Selected distributive trades indicators, growth rates (%) Q1 2007/ Q1 2006 Q2 2007/ Q2 2006 Q3 2007/ Q3 2006 2006/ 2005 Total real turnover in retail trade, the sale and repair of motor vehicles, and retail sale of automotive fuels 5.7 8.3 12.3 6.5 Real turnover in retail trade 6.0 3.9 5.7 1.7 Sale of food, beverages, and tobacco 4.3 -3.4 -3.4 -2.6 Sale of non-food products 7.8 11.7 15.6 6.7 Real turnover in the sale and maintenance of motor vehicles and in retail sale of automotive fuel 5.5 13.0 19.6 11.8 Motor vehicles, motorcycles, parts, and accessories 13.6 22.2 26.3 17.2 Maintenance and repair of motor vehicles -0.7 7.8 8.0 7.3 Automotive fuel -3.7 1.4 13.2 6.1 Total nominal turnover in wholesale trade & commission trade1 20.3 16.2 17.9 10.4 Average number of employed persons2 2.0 2.9 3.8 0.8 Average gross wage per employee2, 3 5.5 4.3 3.8 3.1 Real growth of value added in distributive trades2 8.0 7.6 8.0 6.1 vehicles, and personal and household goods; deflated by the consumer price index. The growth of value added in wholesale and retail trade, the repair of motor vehicles, and consumer goods (activity G) remained exceptionally high in the third quarter of 2007. In real terms, it was 8% higher than in the third quarter of 2006. As in the first two quarters, the high growth rate of value added in distributive trades largely reflected the fairly strong activity in construction and manufacturing, as evidenced by the SORS survey, which shows that the turnover in wholesale trade and in some segments of retail trade that are most closely linked to those two activities (e.g. the sale of non-food products) enjoyed the strongest growth (see table). Sales of motor vehicles accelerated further in the third quarter. They reached their highest level since the second quarter of 1999 (when sales surged in anticipation of VAT introduction). Increased activity is also indicated by the large increase in the number of employees in this sector, which was even greater than in the previous quarters (see table). As in the first two quarters, the largest increase in the number of employees was recorded in wholesale trade (4.9%), while the greatest acceleration in the growth of employees was observed in the sale, maintenance and repair of motor vehicles, and retail sale of automotive fuels (3.3%, after a mere 0.2% increase in the second quarter). The number of employees in retail trade also posted a fairly large increase (3.1%). Stronger growth of total turnover in retail trade in the third quarter was primarily underpinned by the sale of non-food products, the sale and repair of motor vehicles, and the sale of automotive fuels (see table). Within the sale of non-food products, turnover of specialised stores selling furniture, household equipment and construction material increased by a real 15.7% despite the high base (the quarterly year-on-year increases in 2006 topped 15%). High real turnover growth rates in specialised stores selling books, newspapers and other retail sales (19.5%), non-specialised stores mainly selling non-food products (17.4%), and specialised stores selling textile, clothing and leather products (11.9%) were largely the result of the low bases in the third quarter of 2006. Meanwhile, turnover in the sale of food products, beverages and tobacco declined for the second consecutive quarter. A particularly notable drop (by 3.5% in real terms) was recorded in non-specialised stores mainly selling food products (including all major retailers). Turnover in the sale and maintenance of motor vehicles and retail sale of automotive fuels rose by a real 19.6%; specifically by 26.3% in motor vehicles, motorcycles, parts and accessories; by 8.0% in maintenance and repair of motor vehicles; and by 13.2% in automotive fuels, following a minimal increase in the second quarter. Vigorous sales of motor vehicles are also corroborated by data on the number of new car registrations, which increased by 17.6% in the third quarter compared with the same period of 2006. Graph: Turnover indices in distributive trades 220 200 180 160 140 120 100 80 ■ Real turnover in retail trade ■Real turnover in the sale of motor vehicles, motorcycles, parts and a ■ Real turnover in the sale of automotive fuel ■ Nominal turnover in wholesale trade Q1 2003 Q2 Q3 Q4 Q1 2004 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 Source of data: SORS; calculations by IMAD. Q2 Q3 Q4 Q1 2007 Q2 Q3 Source of data: SORS, calculations by IMAD. Notes: only nominal indices are published; in wholesale and retail trade, the repair of motor Tourism Slovenian Economic Mirror IMAD No. 12/2007 p. 14 Selected indicators for tourism & hotels and restaurants, growth rates (%) Q1 2007/ Q1 2006 Q2 2007/ Q2 2006 Q3 2007/ Q3 2006 2006/ 2005 Overnight stays, total 4.8 10.1 6.8 2.0 Domestic tourists 0.5 13.7 2.3 1.9 Foreign tourists 9.0 7.9 9.8 2.0 Average number of people in employment1 2.1 3.1 4.3 2.0 Average gross wage per employee1, 2 1.6 2.3 1.8 1.9 Prices of hotel and restaurant services, total3 6.9 6.6 7.0 4.5 Prices of catering services3 7.6 7.2 7.8 4.4 Prices of accommodation services3 4.0 3.8 3.8 3.8 Turnover in hotels and restaurants (real terms) -1.7 -0.1 3.1 6.2 Accommodation and related services -2.4 0.5 3.3 2.1 Food serving services -1.4 -1.4 -1.1 9.0 Drink serving services -6.2 -4.8 -2.2 8.5 Source of data: SORS; calculations by IMAD. Notes: hotels and restaurants; deflated by the CPI; CPI group or sub-group. The increase in the number of overnight tourist stays in Slovenia was again relatively high in the third quarter of 2007. The number of overnight stays rose by 6.8% in this period, year on year, while the number of tourists increased by 7.5%. The relatively large increase (the highest year-on-year increase in Q3 since 2001) is also significant in terms of the high share of overnight stays generated in the third quarter (over 40% of total annual stays), which contributes to better annual results. The increase in the number of non-residents and their overnight stays was again high, while the growth of the number of domestic visitors slowed down. While all three months were favourable for tourism, August enjoyed the strongest growth: the number of tourists rose by 12.4%, and that of their overnight stays by 9.6%. This brought an end to the series of declines in the number of overnight stays witnessed in August 2005 and 2006, as figures rebounded close to the record marks from August 1990 (see graph). Favourable results in the third quarter are corroborated by data on the number of employees in hotels and restaurants and on turnover in certain segments of this industry. After the 2% year-on-year increase in 2006, the growth in the number of employees in hotels and restaurants picked up gradually in 2007 to reach 4.3% in the third quarter. This is the largest increase since 2001, since comparable data have been available. The number of employees increased most notably in hotels and similar establishments (7.1%), which employ nearly 30% of all workers in hotels and restaurants. Also higher than in previous quarters was the increase in the number of workers in restaurants (3.6%), which employ over 40% of workers in hotels and restaurants. Increased hotel capacities and the consequent growth in the number of employees are also evidenced by stronger activity and higher turnover of companies providing accommodation and related services. Their turnover increased by a real 3.3% compared with the third quarter of 2006 (see table). On the other hand, turnover in restaurants and bars declined in real terms. Data on the number of overnight stays and foreign exchange tourism receipts indicate a highly successful tourism year in 2007. Favourable results from the third quarter continued in October and November, so that 8.2% more tourists stayed in Slovenia in the first eleven months of 2007 than in the same period of 2006. The number of their overnight stays increased by 7.0% (of residents by 4.5%, of non-residents by 8.8%). According to the BS, foreign exchange tourism receipts surged by 15.3% in the ten months to October, year on year. If such trends continued in the last months of 2007, the targets set in the Development Plan and Policies of Slovenian Tourism 2007-2011, according to which the number of tourists should increase by 6%, their overnight stays by 4%, and tourism receipts by 8%, will be surpassed. 2008 is set to be another successful year for Slovenian tourism, since Slovenia's Presidency of the EU is expected to improve Slovenia's visibility and attract more tourists. The total number of visitors in the first half of 2008 who will participate in organised events and meetings is estimated by the Slovenian Tourist Board at 20,000, equalling just over one percent of foreign tourists who make an overnight stay in Slovenia. In addition to the turnover generated by congress tourists (their average spending is higher than the spending of average tourists), Slovenia will especially benefit from becoming more recognisable as a tourist destination. Graph: Number of overnight stays made in Slovenia in July, August and September of selected years □ 1990 ■1991 □ 2004 □ 2005 □ 2006 □ 2007 July Source of data: SORS. August September Private Consumption and Household Indebtedness Slovenian Economic Mirror IMAD No. 12/2007 p. 15 Selected private consumption and household indebtedness indicators Real year-on-year growth rates, %* Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Private consumption1 4.6 4.3 4.6 2.8 2.1 2.3 2.7 Gross domestic product (GDP)1 5.4 5.1 6.1 6.3 7.2 6.0 6.3 Mass of net wages2 3.4 2.8 3.4 4.6 7.5 7.8 7.6 Turnover in retail trade3 2.9 2.8 -0.3 1.4 6.0 3.9 5.7 New car registrations4 0.2 -1.2 7.2 9.0 8.4 13.2 17.6 Consumer confidence indicator5 -16.0 -16.0 -12.0 -12.0 -7.3 -9.0 -9.0 Commercial banks' loans to households (end-of-period stock)6 26.4 26.1 25.9 25.7 28.2 24.6 26.1 Household savings in banks (end-of-period stock)6 5.5 6.1 6.1 7.7 8.7 9.9 11.6 Sources of data: SORS, DUNZ, MF, calculations by IMAD. Notes: 'unless otherwise indicated; 1 SORS; real growth rate; consumption of households and NPISH; 2 according to SORS' data on the average net wage and persons employed by legal entities, recalculated for the month of payment; calculation from original volume indices, SORS; 4 increase in the number of cars, DUNZ; 5 original value, SORS; 6 nominal increases. In the first nine months of 2007, private consumption increased by 2.4% (by 7.0% in nominal terms). Thus, it fell more than 4 p.p. short of real GDP growth and more than 2 p.p. short of real consumption growth in the same period of 2006 (the lag behind nominal consumption growth was just 0.4 p.p.). In the first three quarters of 2007, private consumption growth strengthened gradually but fell short of the 2006 figures. On the other hand, an improvement was signalled by most short-term indicators, which persisted throughout the year at a significantly higher level than a year ago. Mass of net of wages increased by a real 7.7% in the first nine months of 2007, year on year, i.e. by 4.4 p.p. more than in 2006. This was partly due to changes in personal tax legislation (while the real net wage per employee increased by 4.7%, the gross wage per employee increased by 2.6%) and partly to faster growth of employment (3.0%). Other remuneration (AJPES) increased by a real 4.1%, whereas transfers to individuals and households rose by a good 11% in real terms (estimate based on data from the national budget, PDII, HII and aggregate balance sheets of municipal budgets). Turnover in retail trade,1 consumer optimism and new car registrations picked up considerably in the first nine months of 2007, year on year. Turnover in retail trade increased by a real 6.0% in the third quarter and by 5.2% in nine months (2006: 1.8%). Turnover in the sale and repair of motor vehicles increased at an even faster pace (12.6%); within that, it increased by one fifth in the group of motor vehicles, motorcycles and spare parts. The latter is also confirmed by the number of new car registrations, which posted the highest quarterly increase in the third quarter of 2007 since the first quarter of 2004 and surged by 12.9% in the first nine months of 2007. Meanwhile, the nominal growth of non-resident spending in Slovenia totalled 16.1%, while 1 The SORS revised data from the end of 2006 onwards considerably in its October data release about turnover in retail trade. resident spending abroad was a tenth higher than in the same period of 2006. Consumers were more optimistic (-8.4) than in the same period of 2006 (-14.7), particularly regarding the economic situation, future price developments, and the level of unemployment and savings, while they gave lower estimates to past price developments and the advisability of major purchases. The last quarter of 2007 witnessed further strong growth of new registrations, while consumer optimism dwindled sharply. New car registrations surged by 23.1%, as turnover in retail sales of motor vehicles, motorcycles, spare parts and accessories increased by a total 26.0% in October and November. Real turnover in retail trade was 6.9% higher. Following the high optimism that lasted from February to August, consumers became less positive as early as September. In the final quarter, consumer optimism was visibly lower (-18) than a year ago (-12). Consumers gave much lower estimates to the advisability of major purchases (-19; last year +6.0), future economic situation (-24 over -9) and past financial situation in the household (-25 over -16). The mass of net wages increased by a real 5.4% in October. At the end of October, the volume of loans to households and NPISH was 26.4% higher at the year-on-year level. The volume of consumer and other loans posted somewhat higher growth (20.6%) than a year ago (16.3%), whereas the increase in the volume of housing loans was 10.5 p.p. lower (36.8%), probably partly due to the high base. Until the end of October, households recorded net borrowing worth EUR 1,226 m, i.e. 29.8% more than in the same period of 2006 (28.3%). Within that, there were 48.5% housing loans (2006: 52.5%), which increased by close to one fifth (2006: 6.0%). Consumer and other loans picked up by 40.8% (2006: 71.2%). Although the volume of savings in banks rose by 11.5%, the ratio between the average stock of loans and savings in banks in the first ten months of 2007 increased from 0.44 in the previous year to 0.50. Graph: Private consumption with related indicators and net flows of loans 11.0 9.0 7.0 5.0 3.0 1.0 --1.0 i Net flows of consumer and other loans, right axis I Net flows of housing loans, right axis ■ Private consumption, left axis • Turnover in retail trade, left axis Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Sources of data: SORS, BS; calculations by I MAD. Q3 2007 • Net wage bill, recalculated for month of payment, left axis Continuing Education Slovenian Economic Mirror IMAD No. 12/2007 p. 19 Education programmes and participants1 in continuing education2 Education programmes Participants in continuing education Number 05/06 Increase in number, in % 04/05-05/06 Number 05/06 Increase in number, in % 04/05-05/06 Structure, in %, 05/06 Total 19,703 7.0 301,790 -0.7 100.0 Preparation for obtaining national vocational education 106 -5.4 2,260 -57.1 0.7 Preparation for head clerk, foreman or master craftsman exams 88 33.3 999 -14.1 0.3 Preparation for exams for performing an activity 144 -5.3 2,276 1.8 0.8 Preparation for individual matura subjects 233 -57.9 801 -66.4 0.3 Professional occupational programmes 9,482 3.5 191,163 -3.9 63.3 Programmes for general needs and leisure time 2,974 55.1 38,109 40.4 12.6 Language programmes 4,011 8.2 27,438 6.5 9.1 Qualification 419 -0.7 7,397 16.4 2.5 Training 2,199 -2.5 30,606 -9.1 10.1 Specialisation 11 -8.3 284 16.9 0.1 Retraining at the same level of education 36 -23.4 457 -36.4 0.2 Source of data: SORS; calculations by IMAD. Notes: participants in education programmes in continuing education may be adults, youth or children. 2 Continuing education is not part of the formal education system. It includes training, general education, language courses, etc. that do not provide a higher level of formal education. Participants in some education programmes (qualification, training, specialisation and retraining) _obtain occupational qualifications after successfully completing the programme._ Motives for participation in continuing education are varied, while its effects depend on the use of knowledge obtained. The main motive at the company level is to increase the productivity of employees and the competitiveness and business performance of a company. At the individual level, motives may be related to promotion and consequently higher pay, improved employment prospects, leisure time activities, active citizenship, etc. To what extent an individual will actually use the obtained skills largely depends on how successfully he or she identified the demand for new skills and how appropriately he or she selected the education programme. The effects of participation in continuing education are diverse and often difficult to measure. The number of education programmes and participants in continuing education increased in the period from 2001/2002 to 2005/2006.1 Data on the number of education programmes provide information about the education possibilities of the population. In 2005/2006, there were 19,703 continuing education programmes (see also table), 0.9% more than in 2001/2002. The number of participants in these programmes increased significantly more (by 19.2%), suggesting that certain factors that affect the participation of individuals in continuing education have strengthened (demand for education, cost of education, appropriate supply of education programmes, etc.). 1 Data by type of education programme are available from 2001/2002. Therefore, the dynamics of the number of participants are presented from that year onwards. The increase in the number of participants in continuing education in the period 2001/2002-2005/2006 was largely based on the increase in the number of participants in professional occupational programmes. In the analysed period, the number of participants in these programmes recorded the largest absolute increase (68,227) among all programmes. The percentage of participants relative to the total number of participants increased from 48.6% in 2001/2002 to 63.3% in 2005/2006. The second largest increase was observed in programmes for general needs and leisure time (the number of participants rose by 2,092), followed by qualification programmes (up by 1,589). With the rising number of language course participants, the share of participants in French courses is particularly on the increase. Knowledge of foreign languages is essential for the successful performance of employees in contact with foreigners and for the integration of individuals in international mobility flows (due to education or work). The number of participants in language courses increased by 2.3% from 2001/2002 to 2005/2006. There are more female than male participants (see graph). In 2005/2006, most participants learned English, but their number declined from 2001/2002. The number of participants in German courses also contracted, while the number of participants in French courses, which was the third highest after English and German, increased. The number of participants in the courses of Russian, the language of one of Slovenia's important foreign trade partners, is slowly rising as well. Graph: Structure of participants in continuing education programmes by gender, 2005/2006 Retraining at the same level of education Preparation for individual matura subjects Programs for general needs and leisure time Language programmes Total Professional occupational programmes Training Qualification Preparation for obtaining national vocational education Preparation for exams for performing an activity Preparation for head clerk foreman or master craftsman exams Specialisation Source of data: SORS, calculations by IMAD. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Available and Allocated Assets of Households and Possession of Durable Goods, 2000-2005 Slovenian Economic Mirror IMAD No. 12/2007 p. 20 Per household member Real terms, in SIT, 2005=1001 Share in %, current prices 2000 2003 2005 2000 2003 2005 Available assets2 1,318,217 1,445,299 1,551,798 100.0 100.0 100.0 Income3 1,273,628 1,382,845 1,478,161 96.6 (100.0) 95.7 (100.0) 95.3 (100.0) Income from employment 749,119 812,713 891,511 (58.8) (58.8) (60.3) Income from self-employment 140,098 133,466 123,624 (11.0) (9.7) (8.4) Pensions with supplements 298,872 336,459 356,698 (23.5) (24.3) (24.1) Other social and family benefits 68,585 71,634 75,779 (5.4) (5.2) (5.1) Property income 4,494 6,809 8,028 (0.4) (0.5) (0.5) Money gifts and transfers 6,139 7,856 8,150 (0.5) (0.6) (0.6) Other income - benefits in kind4 6,322 13,907 14,371 (0.5) (1.0) (1.0) Receipts from sale5 39,493 43,931 49,055 3.0 3.0 3.2 Other receipts6 5,096 18,522 24,582 0.4 1.3 1.6 Allocated assets 1,344,933 1,408,814 1,542,092 100.0 100.0 100.0 Consumption expenditure7 1,205,041 1,252,856 1,339,751 89.9 (100.0) 89.0 (100.0) 86.9 (100.0) Food and non-alcoholic beverages 228,912 216,200 222,921 (20.2) (18.4) (16.6) Alcoholic beverages and tobacco 29,852 29,394 32,513 (2.1) (2.3) (2.4) Clothing and footwear 94,286 102,727 107,484 (9.0) (8.6) (8.0) Housing, water, electricity, gas and other fuels 153,119 161,244 162,635 (11.2) (11.7) (12.1) Furnishings, household equipment and routine household maintenance 88,920 85,343 97,415 (7.6) (6.8) (7.3) Health 21,821 21,153 22,831 (1.8) (1.8) (1.7) Transport8 222,233 218,537 256,620 (17.8) (17.1) (19.2) Communications 38,060 54,165 67,002 (3.2) (4.6) (5.0) Recreation and culture 110,115 137,851 145,871 (9.5) (11.0) (10.9) Education 12,110 12,763 14,016 (0.9) (0.9) (1.0) Hotels, cafes and restaurants 73,711 76,254 62,569 (5.8) (5.9) (4.7) Miscellaneous goods and services9 131,902 137,225 147,874 (10.8) (11.0) (11.0) Other expenditure 135,446 155,210 202,339 10.1 (100.0) 11.0 (100.0) 13.1 (100.0) Expenditure for a dwelling, house10 96,710 106,607 146,286 (71.4) (68.7) (72.3) Other expenditure" 38,737 48,603 56,053 (28.6) (31.3) (27.7) Possession of selected durables, share in % 2000 2003 2005 Video camera 8.5 9.1 10.2 Tumble dryer 13.0 15.6 19.7 Dishwasher 30.1 37.5 42.3 Car 79.0 78.7 79.6 Personal computer (access to Internet*) 33.5 (21.0) 44.9 (40.0) 51.5 (58.012) Mobile phone 22.0 80.1 84.7 Source of data: SORS (Household Budget Survey - HBS, 'Statistical Yearbook 2007); calculations by IMAD. Notes: deflated by CPI; individual groups of consumption expenditure are deflated by corresponding deflators. 2 Including own production and benefits in kind. 3 Income includes all financial income received by household members in 12 months, except for receipts from sale and other receipts. 4 Relatives or friends paid household bills for electricity, water, gas, telephone, TV subscription, car registration, etc. 5 Receipts from sales of movable and immovable assets as well as securities. 6 Winnings at gambling, compensation for nationalised or dispossessed property, inheritance and legacy, income from life insurance, from insurance companies. 7 Classified into 12 groups according to the COICOP classification. 8 Purchase of vehicles, goods and services for vehicles, transport services. 9 Personal care, other personal items, social protection, insurance, financial services, other services. 10 Purchase of a dwelling, renovations, major works. 11 Taxes and self-imposed contributions, savings, money transfers and gifts, life insurance, voluntary pension and disability insurance, fines _and indemnities. 12 Figure for 2007._ The SORS published detailed data for 2000-2005 on available and allocated household assets and possession of durable goods based on the Household Budget Survey. Data show that in 2005 the available assets of households increased more than their allocated assets. The share of food expenditure declined again, while the differences in quintile consumption shares increased again. In 2005 the available assets of households increased by 3.2% over the previous year (in 2004 by 4.1%). Compared with income (up 2.9%), other components of available assets saw faster growth - receipts from sales increased by 9.6%, other receipts by 9.1%. Within income, the largest increases were observed in property income (up 8.2%) and income from employment (4.6%). A decline was recorded in income from self-employment and money gifts and transfers (-4.9% and -6.0%). Allocated assets increased less than available assets in 2005 (by 2.6% in real terms). In 2004, their 6.7% increase exceeded the growth of available assets for the first time in 2000-2005. Within allocated assets, consumption expenditure increased by 1.7% (5.1% in 2004), while other expenditure, which consistently (except in 2001) increased at a faster pace than consumption expenditure, went up 9.5% (19.1% in 2004). Among consumption expenditure, the largest increases were observed in communications (7.6%; 8.4% in 2004) and furniture (7.0%; 6.5% in 2004 after a three-year decline). Food costs have been declining year by year. In 2005 they decreased by 2.2%; since 2000 by 8.8%. Drops of over 2% were also recorded in the groups clothing (+1.5% in 2004) and health (+5.0% in 2004). Except in 2002, when it increased by 6.2%, expenditure on hotels declined throughout 2000-2005 (by a total of 10.9%), most notably in the last two years. The ratio of allocated to available assets per household member is below 1. In 2000-2005, allocated assets topped available assets only at the beginning of Available and Allocated Assets of Households and Possession of Durable Goods, 2000-2005 Slovenian Economic Mirror IMAD No. 12/2007 p. 21 the analysed period (by 2%). Since then, households' spending per member has been slightly lower than their income (by 0.6% in 2005). Excluding own production and benefits in kind (the table includes this income), allocated assets were 4.7% higher than available assets (in 2004 one percentage point more). Also in this comparison, the ratio of allocated to available assets was the highest in 2000 (households spent 10.1% more than they earned), probably still under the influence of the extensive borrowing in 19991 prior to VAT introduction. Thus, increased borrowing since 2004 is still not showing in the ratio of allocated to available assets. Looking at the structure of allocated assets, the share of other expenditure increased again to a high 13.1%. This increase was largely based on higher expenditure on dwellings and houses, which is consistent with the growth of housing construction and housing loans since 2004 and, consequently, with the higher share of expenditure on furniture in 2005. In the structure of consumption expenditure, the difference between the shares of transport and food expenditure increased somewhat further in 2005. In 2004, transport expenditure reached the highest share in the structure of consumption expenditure for the first time (18.5%). Compared with 2004, expenditure on hotels posted the greatest drop - in a year, its share fell by almost one tenth to 4.7% (since 2000 by one fifth, or more than one percentage point). Other groups whose shares declined from 2004 include clothing (by 0.3 p.p. to 8.0%) and, to some extent, recreation. By contrast, increases were recorded in the shares of housing (up 0.3 p.p.), furniture (0.4 p.p.), transport (0.7 p.p.) and communications (0.3 p.p.); the latter accounted for 5% in the structure (see table). The fifth of households with the smallest consumption spends 43.7% of their expenditure on food and housing, while the fifth with the highest consumption spends just 24.1% for the same purpose. Quintile consumption expenditure shares show that households from the first to third quintiles spend the Data from HBS for the reference year 2000 are calculated using data for a period of three consecutive years, namely 1999-2001. highest share of their expenditure on food, while the last two quintiles spend the most on transport. Housing has the second highest share in the first and second quintiles (18.9% and 16.2%, respectively), followed by transport (11.2% and 14.0%). Food expenditure shares exhibit the largest absolute difference between the first and the fifth quintiles (10 p.p.). The first quintile allocates as much as a quarter of its consumption expenditure for food. The largest relative difference in shares occurs in the housing group, where the first quintile spends double the expenditure share of the fifth quintile (see graph). Households in the first quintile also have the highest share of expenditure on communications (5.9%, although the amount is three times lower than in the fifth quintile). The highest shares of health expenditure are found in the second and third quintiles; households in the second quintile spend the highest share on hotels, while the first and fourth quintiles have the highest expenditure on miscellaneous goods and services. In 2005, the fifth of households with the highest expenditure spent almost four times more on consumption expenditure (SIT 6.2 m on average) than the fifth of households with the lowest expenditure. The largest relative difference was in expenditure on education, where households in the top quintile spent 20 times more (close to SIT 100,000) than those in the bottom quintile. Large differences were also recorded in transport expenditure, where the first quintile spent SIT 180,000, while the last spent almost SIT 1.4 m, and in the clothing and footwear group, where the amount in the first quintile (SIT 77,000) was 7.3-times lower than in the top quintile. The smallest ratio between the first and the fifth quintiles was in housing expenditure, where the former spends a good SIT 300,000 and the latter almost twice as much. Gaps in quintile expenditure shares are widening. In 2000, the top quintile allocated SIT 4.8 m for consumption goods (2005 prices), 3.7 times more than the bottom quintile. The shares of housing and food expenditure were 28.0% for the top quintile and 46.4% for the bottom quintile. In five years, this share contracted by 3.9 p.p. (close to 14%) in the highest quintile, yet merely by 2.7 p.p. (close to 6%) in the first quintile. Graph: Consumption expenditure shares by group, I. and V. quintiles, 2005 25 20 15 % 10 5 0 Source of data: SORS. Note: for detailed group names see table. Population of Slovenia, 2006-2007 Slovenian Economic Mirror IMAD No. 12/2007 p. 22 Selected population indicators 1995 2001 2002 2003 2004 2005 2006 2007 Population (thousands) 1,987.5 1,992.0 1,995.7 1,996.8 1,997.0 2,001.1 2,008.5 2,019.4 Live births 19.0 17.5 17.5 17.3 18.0 18.2 18.9 - Deceased 19.0 18.5 18.7 19.5 18.5 18.8 18.2 - Immigrants 5.9 7.8 9.1 9.9 10.2 15.0 20.0 - Emigrants 3.4 4.8 7.3 6.5 8.3 8.6 13.7 - Natural increase (per 1,000 pop.) 0.0 -0.5 -0.6 -1.1 -0.3 -0.3 0.4 - Net migration (per 1,000 pop.) 1.3 1.5 0.9 1.7 1.0 3.2 3.1 - Life expectancy Men 70.3 72.1 72.3 73.2 73.5 74.1 74.8 - Women 77.8 79.6 79.9 80.7 81.1 81.3 81.9 - Infant mortality (per 1,000 live births) 5.5 4.2 3.8 4.0 3.7 4.1 3.4 - Total fertility rate 1.29 1.21 1.21 1.20 1.25 1 .26 1.31 - Age structure of the population (in %) 0-14 years 18.4 15.6 15.2 14.8 14.5 1 4.2 14.0 13.9 15-64 years 69.3 70.1 70.2 70.4 70.4 70.3 70.2 70.1 65 years and over 12.3 14.3 14.6 14.9 15.2 15.5 15.7 16.0 Old age dependency ratio 17.8 20.4 20.8 21.2 21.6 22.0 22.4 22.9 Ageing index 67.0 91.9 96.4 100.8 104.9 108.7 112.4 115.1 Annual increase (in %) Population -0.1 0.1 0.2 0.1 0.0 0.2 0.4 0.5 0-14 years -2.2 -2.2 -2.4 -2.6 -2.0 -1.4 -1.2 -0.1 15-64 years -0.1 0.1 0.3 0.3 0.0 0.1 0.3 0.3 65 years and over 3.4 2.4 2.5 1.7 2.0 2.2 2.2 2.3 Source of data: SORS; calculations by IMAD. In 2007 the population of Slovenia increased considerably for the third consecutive year. On 30 June 2007, the population totalled 2,019,406 persons, which is 10,890 (or 0.5%) more than a year ago and 31,901 (1.6%) more than in 1995, when the SORS adopted the current definition of the present population. The number of Slovenia's inhabitants increased only slowly until 2004 and did not exceed two million until 2005. As in the previous two years, the increase in population recorded in 2007 was largely due to a high net migration, which is mostly seasonal. In 1993-2004, net migration was relatively low, i.e. approximately 1.2 per 1,000 inhabitants. In 2005 and 2006 it rose to over 6,000, or 3.2 per 1,000 inhabitants. The available data indicate that it will be even higher in 2007. In the first half of 2007, 15,415 persons immigrated to Slovenia, 14,859 of whom were foreigners, while 6,348 persons (4,797 foreigners) emigrated from Slovenia. Thus, net migration increased to more than 9,000 or 4.5 per 1,000 inhabitants. Most immigrants still come from successor countries of the former Yugoslavia (predominantly BiH), mostly for economic reasons - many come for seasonal employment in construction, agriculture, and hotels and restaurants (see also p. 10). Most migrants are male, aged 20-29, with a poor education structure (see SEM 4/2007: 22-23). Few people immigrate from other EU countries to Slovenia; there were 1,339 such immigrants in 2006. While the number of citizens of the Republic of Slovenia increased by 1,437 in 2007, the number of foreigners surged by 9,453. Among the latter, 2,824 have permanent residence in Slovenia, and 6,629 are temporary residents. Of the total 62,722 foreigners present in Slovenia (17.7% more than a year ago), almost half were temporarily present on 30 June 2007. In 2006 the population also grew due to natural increase, which was, however, again slightly negative in the first half of 2007. The number of births, which was on a declining trend from 1980 to 2003 due to declining fertility, rose for the fourth consecutive year in 2007. In the first half of 2007, there were 3.1% more births than in the same period of 2006. Since the number of deaths also increased by 1.3% in the meantime, the natural increase in the first half of 2007 was slightly negative (-0.02 per 1,000 inh.). In 2006 there were 18,932 births (775 more than in 2005) and 752 fewer deaths. Thus, the natural increase was again positive that year (+0.4 per 1,000 inh.), after having been negative since 1997. The fertility rate again increased somewhat in 2006, but it nevertheless remains one of the lowest in Europe. Slovenia's total fertility rate, calculated as the ratio between the number of live births and the number of women of child-bearing age in a calendar year, was 1.31 in 2006, i.e. 0.11 more than in 2003, when it hit its lowest level. Both the number of first-born and subsequent babies increased. The fertility rate of women aged below 26 has been declining for more than 25 years. In the last few years, the decline in the fertility of women aged 15-19 has come to a halt, while the decline in the 20-26 age group has slowed down. The fertility rates of women aged 27 or more have been on a rising trend since 1990. The age of women with the highest fertility rate is accordingly also rising. In the mid-1990s, 26-year-olds had the highest fertility rate; in 2006, this age rose to 29. In addition, the average age of women at the birth of all children and at the birth of the first child is also increasing; the former is 29.7 years (1.5 and 2.5 years more than in 2000 and 1995, respectively), the latter 28 years (1.5 and 3.1 years more than in 2000 and 1995). Thus, Slovenia is approaching the countries with a high average age at the birth of children. In most EU countries, fertility rates have been increasing for several years after hitting their historical lows in the second half of the 1990s. However, they are still not high enough to allow simple renewal of the population. Life expectancy increased again in 2006. After a minor halt in the initial period of transition, it has been Population of Slovenia, 2006-2007 Slovenian Economic Mirror IMAD No. 12/2007 p. 23 increasing steadily ever since 1994. In 2006 it totalled 74.8 years for men (0.7 and 4.5 years more than in 2005 and 1995, respectively) and 81.9 years for women (0.6 and 4.1 years more than in 2005 and 1995). Although the gender gap has narrowed for the second consecutive year, it remains large (7.1 years, after having hovered around 7.5 years in 1995-2004). The mortality rate of men aged 60 and over is falling at a faster pace than that of women. On the other hand, the female mortality rate in the 30-59 age group is declining more rapidly than the male one. In 2006 life expectancy also increased in most other EU countries. According to this indicator, Slovenia is still ranked lower than the old member states, as well as Cyprus and Malta (see graph). Infant mortality in Slovenia declined again in 2006 and remains one of the lowest in the EU. In 2006, 3.4 infants aged less than one year died per 1,000 live births, i.e. 0.3 fewer than in 2004, when infant mortality in Slovenia reached its historically lowest level until then, which, however, increased to 4.1 in 2005. The lowest infant mortality rates in the EU in 2006 were measured in Luxembourg, Finland and Sweden, while the highest rates were recorded in Romania and Bulgaria. As the number of children decreases and life expectancy increases, the share of the elderly population continues to climb. The number of children aged 0-14 and their percentage in the age structure of the population is falling rapidly, while the number of citizens aged 65 and over and the share of elderly people in the population's age structure are rapidly increasing (see table). In 2003, the number of citizens aged 65 and over first exceeded the number of children. The ageing index, i.e. the ratio between these two population groups, exceeded 100 and rose to 115.1 by 2007. The number of inhabitants of working age (1564) is still slowly rising due to positive net migration, yet their share in the population's age structure has begun to decrease slowly. As the number of inhabitants aged over 65 is increasing at a faster pace than that of those aged 15-64, the ratio between the elderly and working-age populations is climbing as well (see table), although it is still lower than in the EU, where there were on average 25.0 elderly people per 100 working-age inhabitants in 2006. Life expectancy is increasing at a faster pace than foreseen by existing projections. Eurostat will publish new projections, prepared on the basis of the "convergence scenario", in March 2008. The scenario projects that life expectancies and fertility rates of all 27 EU member states will converge due to the gradual levelling of economic and living conditions. However, these projections will merely be a variant that will not significantly alter the already known assumptions about population ageing in most European countries, i.e. the growing volume of the elderly and very old populations and the concurrent much slower increase or even contraction in working-age populations (see SEM 1/2007: 22-23). The projected demographic changes call for systematic action in the policy areas of population, employment and public finances. Family and employment policy measures should encourage families to have more children. Migration policy measures should regulate immigration and emigration flows in accordance with future labour market needs, and enable appropriate social integration of immigrants. Labour productivity and economic competitiveness should be raised, as should the activity rate, particularly in those age groups where individuals will already fulfil the minimum conditions for retirement. This would benefit both pension expenditure and the expected labour market situation. In addition, general government expenditure on pensions, health care and long-term care must be made sustainable by adjusting social security expenditure to the available public finances and through a higher share of private insurance schemes. In addition to Slovenia's Development Strategy, all these measures were also recommended by the European Commission in its Communication of 12 October 2006 (C0M(2006)571final)._ Graph: Total (male and female) life expectancy in EU member states, 2006 82 80 78 76 74 72 70 — — — — 1—1 - - - nn Ü J? E E to Cö D o D CT ro C O n ■Ö ct CT D t E > E ■ ^ ÇP > t EURO EXCHANGE RATES indices: average 2001 = 100 T-1-1-1-1— "5 ^ : ^ 0 t ^