Slovenian Economic Mirror J IMAD Economic Analyses/February 2007 No. 2, 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: Boštjan Vasle (In the Spotlight), Jure Brložnik (International Environment - EMU, International Environment - USA), Jože Markič (Balance of Payments - Current Account, Balance of Payment - Capital & Financial Account), Metka Stare (Trade in Services), Miha Trošt (Price Trends & Policy), Tomaž Kraigher (Labour Market, Labour Market - Unemployment in 2006), Saša Kovačič (Earnings), Katarina Ivas (Manufacturing), Janez Kušar (Construction), Mateja Kovač (Agriculture -Production and Economic Accounts), Dušan Kidrič (Pension Insurance), Mojca Koprivnikar Šušteršič (Selected Competition Indicators in Wholesale and Retail Sale), Janja Pečar (Regions 2006 - Selected Regional Socio-economic Indicators), Eva Zver (Health Expenditure - International Comparison), Jure Povšnar (Household Electricity). Director: Janez Šušteršič. Editor in Chief: Luka Žakelj. Translator: Tina Potrato. Language Editor: Murray Bales. 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.zakelj@gov.si Translator: tina.potrato@gov.si Distribution: publicistika.umar@gov.si SEM can be found on the Internet at http://www.gov.si/umar/ 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. 2/2007 p. 2 In the Spotlight Developments in the labour market were favourable in 2006; the ILO unemployment rate fell to 6.0% p. 3 International Environment -EMU Economic growth in the EMU was higher than expected in 2006; outlook for this year better than in autumn p. 4 International Environment -USA GDP growth and inflation are slowing down p. 5 Balance of Payments - Current Account The level of the current account deficit poses no threat to the balance of payments p. 6 Balance of Payments - Capital and Financial Account Capital flows rose further in 2006 p.7 Trade in Services Other services recorded the highest increase in exports and imports p. 8 Price Trends & Policy The contribution of price rises attributable to the euro changeover to inflation is comparable to the corresponding contributions in other EMU countries p. 9 Labour Market Formal employment increased by 1.4% in 2006, primarily in construction and business services p. 10 Labour Market - Unemployment in 2006 Average ILO unemployment rate fell to 6.0% while average registered unemployment rate declined to 9.4% in 2006 p. 11 Earnings The annual real growth of the average gross wage per employee totalled 2.2%, which is less than the estimated growth of productivity p. 12 Manufacturing Manufacturing's industrial production enjoyed the highest growth in 15 years last year p. 13 Construction Robust growth of activity in Q4 of 2006 p. 14 Agriculture - Production and Economic Accounts According to first estimates, the production value and value added in agriculture fell by around 6% last year p. 15 SELECTED TOPICS Pension insurance Growth of pension base exceeded wage growth p. 19 Household Electricity The consumption of household electricity is not more intense than the consumption of other energy sources pp. 20, 21 Selected Competition Indicators in Wholesale and Retail Trade Competition in wholesale and retail trade increased between 2002 and 2005 p. 22 Health Expenditure -International Comparison Total expenditure on health in Slovenia accounted for 8.5% of GDP in 2004, slightly less than the EU-15 average p. 23 Regions 2006 - Selected Regional Socio-economic Indicators The biggest regional disparities observed in unemployment pp. 24, 25 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 Latest Compared to the previous month same period of previous year developments, change in % Data latest data pre-latest data pre-pre latest data Industrial production (value based) December -15.8 7.0 7.2 7.1 Manufacturing December -17.5 7.5 7.8 7.7 Electricity, gas and water supply December 12.7 -0.9 0.4 0.9 Value of construction put in place, real terms December -3.8 15.3 13.8 12.7 Exports of goods (nominal terms in EUR)1 December -16.0 16.4 16.6 16.7 Imports of goods (nominal terms in EUR)1 December -12.3 15.9 16.8 16.8 Unit labour costs2 November - -4.3 -4.4 -4.2 Tolar's real effective exchange rate3 December 0.3 0.6 0.5 0.4 Gross wage per employee, real terms December -9.9 2.2 2.4 2.2 Total household savings in banks4, nominal terms December 3.2 7.7 6.7 5.6 General government revenue, real terms January -12.6 4.5 5.8 5.9 Growth in the no. of persons in paid employment December -0.4 1.4 1.4 1.3 Growth in the no. of registered unemployed January 2.1 -16.0 -6.6 -5.8 Growth in the no. of job vacancies January 26.2 4.3 12.3 13.9 Month current previous pre-previous Registered unemployment rate | December 8.6 8.6 8.9 Month current cumulative annual5 Consumer prices February -0.2 -0.8 2.1 Producer prices (domestic market) January 0.6 0.6 3.5 Sources of data: SORS, BS, ESS, estimates and calculations by IMAD. Notes: 1balance of payments' statistics; 2in manufacturing, in the currency basket; 3measured by relative consumer prices; the calculation of the tolar's 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; a rise in the index value indicates an appreciation of the tolar and vice versa; 4the 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; 5total in the last 12 months. In the Spotlight Slovenian Economic Mirror IMAD No. 2/2007 p. 3 After the high GDP growth rates recorded in the euro area in 2006 the forecasts for 2007 have also seen upward revisions. According to Eurostat's flash estimates, GDP growth in the euro area accelerated from 2.8% to 3.3% in Q4 of 2006 and was much higher in the year as a whole than in the previous year (2.7% over 1.4%). The European Commission estimates that the economic recovery was broad-based as both exports and domestic demand gained momentum last year. The EC's forecast of this year's GDP growth was consequently revised upwards to 2.4% (up 0.3 p.p. from the autumn forecast). Among Slovenia's key trading partners, higher growth is expected in Germany and Italy whereas the forecast for France is slightly lower than in autumn (see p. 4). Looking at the Slovenian economy, data on industrial production and construction similarly confirm the expected positive flows at the end of 2006. Manufacturing's industrial production increased by a high 7.5% last year. Almost 90% of the total increase in production was generated by the four largest sub-industries that are either mainly or highly export-oriented and, with the exception of one of them, belong to high- or medium-high technology industries. Low-technology industries and industries mainly oriented to the domestic market achieved the poorest results (see p. 13). The highest growth in 15 years recorded in construction mainly reflected the building of motorways, coupled with a pick-up in non-residential construction (see p. 14). The deficit in the current account widened. According to preliminary data, the current account deficit totalled 2.6% of the GDP estimated in the IMAD's Autumn Report, 0.6 p.p. more than in 2005. Given the structure of inflows and outflows, this deficit level does not create any major pressures on the growth of gross external debt and is therefore still regarded as sustainable in the long run. The current account deficit was created by deficits in all accounts except in services where the surplus remained approximately the same as in 2005 (see p. 6). There was also an increase in capital flows, while the structure of the financial account changed. After the net capital inflow recorded in 2005, 2006 witnessed a net outflow of capital that was largely the result of higher investment in securities abroad as well as the lower long-term borrowing of domestic banks abroad. Although foreign exchange reserves decreased, they were sufficient to cover the short-term debt by remaining maturity and the current account deficit. This indicates that the liquidity and solvency of the Slovenian economy is not under threat despite the relatively high gross external debt (80.5% of GDP; see p. 7). The positive developments seen in the labour market were marred by the high unemployment of certain population groups. Formal employment rose by 1.4% in comparison with 2005, while employment according to the labour force survey rose by 1.3%. The number of formally employed workers increased notably in construction and business services and fell in mining and manufacturing. The decline in unemployment was largely underpinned by strong economic activity, while the decrease in registered unemployment was also linked to administrative reasons. The number of people registered as unemployed in December 2006 was the lowest since August 1991. The average registered unemployment rate declined to 9.4% last year. The survey unemployment rate (ILO definition) remained unchanged in Q3 and Q4 of 2006 (at 5.6%), while its annual rate decreased to 6.0% according to our calculations. Against the background of favourable general flows, the number of the unemployed with a higher education and those aged over 50 continued to increase. The average number of the former rose by 7.6% last year, up 60.6% from 2001, while the number of the latter rose by 4.2% from 2005 (see pp. 10-11). As economic trends and labour market indicators improved, the real growth of wages remained the same as in 2005. The gross wage per employee increased by a nominal 4.8% and by a real 2.2% last year. With the higher labour productivity, the lagging of wage growth behind productivity growth thus widened again. The substantial gap between the wage increases in the private and the public sector also persist; real growth in the former totalled 1.0%, in the latter 2.8% (see p. 12). According to the current indexation rule for pensions, adopted in 2004, the minimum pension base is fully indexed to wages. In 2006, however, the minimum pension base increased by 5.1% in nominal terms, 0.3 p.p. more than the increase in wages. The gap was due to the method of determining the indexation rate. The November indexation is based on the estimated annual increase in wages. Therefore, if the actual figure differs from the estimate, the indexation of the pension base may exceed the target level (see p. 19). Inflation remained low in the first two months of the year. Average inflation remained unchanged in February (at 2.5%), i.e. at the level recorded from the beginning of 2006. Year-on-year inflation still hovers around this level. It totalled 2.8% in December and declined to 2.1% by February. Its fluctuations mainly reflect seasonal and one-off impacts - in February particularly lower prices of food and fuels and higher prices of recreation and culture. The inflationary dynamics seen in the first two months of the year also confirm that rather than causing a general increase in prices, the euro changeover only gave rise to individual increases in certain price groups, notably in services (as a result of rounding-up). Based on preliminary data we estimate that the overall increase in prices attributable to the euro changeover totalled 0.24 p.p. (also see p. 9). International Environment - EMU Slovenian Economic Mirror IMAD No. 2/2007 p. 4 Real growth, 2006 2007 2008 20051 IMAD EC Nov. 06 Cons. Feb. 07 EC Feb. 07 Estima- IMAD EC Nov. 06 Cons. EC IMAD EC Nov. 06 Cons. % AR062 te1 AR062 Feb. 07 Feb. 07 AR062 Feb. 07 EMU 1.4 2.5 2.6 2.7 2.7 2.7 1.8 2.1 2.1 2.4 1.9 2.2 2.1 Germany 0.9 2.2 2.4 2.7 2.7 2.7 1.1 1.2 1.7 1.8 1.5 2.0 2.0 Italy 0.0 1.7 1.7 2.0 1.9 2.0 1.2 1.4 1.3 2.0 1.5 1.4 1.5 France 1.2 2.3 2.2 2.0 1.9 N/A 1.9 2.3 1.9 2.2 1.9 2.1 1.9 Comparison of different forecasts of real GDP growth (in %) Sources of data: IMAD - Autumn Report (2006); EC Autumn Forecasts 2006 (November 2006), Consensus Forecasts (February 2007), EC Interim _Forecasts (February 2007). Note: 1Eurostat; 2Assumptions from the IMAD's Autumn Report._ According to the Eurostat's flash estimate, GDP growth in the euro area accelerated from 2.8% to 3.3% in the final quarter of 2006 (year on year, seasonally adjusted). The flash estimate of GDP growth in the fourth quarter of 2006 is based on data for one-third of EU member states. Even without the detailed breakdown of the expenditure side of GDP (detailed data will be released on 6 March) we can say that the economic upswing is broad-based. The Commission estimates that export growth picked up last year along with import growth, driven by the stronger growth of domestic demand. Within domestic demand, the contributions of private consumption and investment to total GDP growth in the first three quarters were roughly even. In Eurostat's estimate, GDP growth in the euro area almost doubled in 2006 over 2005 (from 1.4% to 2.7%). Consequently, the EC's autumn forecasts of economic growth in 2007 were also revised upwards. In its February Interim Forecast, the European Commission revised its forecast upwards for this year's GDP growth in the euro area by 0.3 p.p. to 2.4%. The correction was mainly based on the improved outlook for Germany (up from 1.2% to 1.8%) and Italy (from 1.4% to 2.0%) whereas the forecast for France is slightly lower (from 2.3% to 2.2%). The positive prospects are also backed up by various indicators of sentiment, which signal a continuation of growth, although at a slightly lower pace than last year. Private consumption and investment will remain the main driving forces of economic growth this year. The more favourable outlook for private consumption growth is largely underpinned by the improved labour market situation: employment rose by 1.5% last year, after recording average growth of 0.7% in the last four years. The unemployment rate also fell, from 8.6% in 2005 to 7.8% in 2006. The optimistic outlook for investment growth is largely based on the high capacity utilisation rate, which totalled 84% in January and exceeded a long-year average. The outlook for inflation has also been improved: after last year's 2.2% increase, which was the same as in 2005, inflation is projected to ease off to 1.8% this year, down 0.3 p.p. from the autumn forecast. Economic growth in Germany accelerated from quarter to quarter in 2006 and reached 3.7% in Q4 (year on year, seasonally adjusted) and 2.7% in 2006 as a whole, the highest growth since 2000. The main factors behind last year's GDP growth were exports as German enterprises took full advantage of the favourable trends in global trade and investments, both in machinery and equipment as well as in construction. After several years of stagnation, private consumption also contributed to overall GDP growth in 2006. Its pick-up at the end of the year was temporarily driven by the announced VAT increase. Regardless of this effect, the private consumption outlook has improved thanks to the better situation in the labour market (the unemployment rate fell from 9.5% in 2005 to 8.1% in 2006). It appears that the negative effects of the VAT raising will be transitory and that the German economy will resume its cyclical recovery in the second half of the year at the latest. This is also corroborated by the Ifo business climate index and the Gfk consumer sentiment index, both of which fell slightly in the last two months, but the Ifo's index expectations component for the next six months was on the rise from September to January before declining somewhat in February, whereas the same component of the Gfk index has been on the increase ever since October 2006. Italy's GDP growth accelerated strongly in the fourth quarter of 2006, from 1.7% to 2.9% (year on year, seasonally adjusted). The resulting annual economic growth was also higher (2.0%) than projected in autumn. The acceleration of growth in the latter part of the year was foreshadowed by an entirely unexpected surge in industrial production, which reached its highest level since Q3 of 1999 in the final quarter of 2006. Due to the higher than expected growth in 2006, the expectations for the current year have also been revised upwards. According to the EC's February forecast, Italy's GDP growth will total 2.0% this year, 0.6 p.p. more than projected in autumn. However, the decrease in both industrial and consumer confidence as well as the slowdown expected in Germany in the first half of the year and the planned tighter fiscal policy suggest that economic activity in Italy will soften in the first half of the year. Following its robust GDP growth in the second quarter, the French economy lost momentum in the second half of 2006. Annual growth is estimated to have reached 1.9%, 0.3 of a percentage point less than projected in the Commission's autumn forecast. The deceleration was largely linked to the slowdown in export growth in the last two quarters reflecting the relatively low competitiveness of the French external sector. In 2007, GDP is projected to grow by 2.2%, which is slightly below the autumn forecasts. Growth will continue to be largely driven by domestic demand, especially private consumption, thanks to the improvement in the labour market where the unemployment rate fell from 9.6% in 2005 to 9.0% in 2006. International Environment - USA Slovenian Economic Mirror IMAD No. 2/2007 p. 5 Real growth rates (%) Year-on-year Annualised quarterly Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Gross domestic product 3.7 3.5 3.0 3.1 5.6 2.6 2.0 2.2 Private consumption 3.4 3.0 2.7 3.6 4.8 2.6 2.8 4.2 Government consumption 2.1 2.0 1.6 2.7 4.9 0.8 1.7 3.3 Gross fixed capital formation 6.2 7.4 5.9 -2.3 7.8 1.0 -0.8 -15.6 Residential 6.1 -1.5 -8.1 -12.6 -0.3 -11.1 -18.7 -19.1 Non-residential 7.4 7.2 8.3 6.2 13.7 4.4 10.0 -2.4 Exports of goods and services 9.0 8.2 9.1 9.3 1 4.0 6.2 6.8 10.5 Imports of goods and services 6.4 6.4 7.2 3.4 9.1 1.4 5.6 -2.2 Source of data: US Bureau of Economic Analysis (February 2007). The annualised quarterly GDP growth in the USA totalled 2.2% in the final quarter of 2006. Following the 2.0% increase in the third quarter, economic growth picked up slightly in the fourth quarter, primarily as a result of the acceleration in the growth of private consumption (from 2.8% to 4.2%) and government spending (from1.7% to 3.3%). GDP growth was higher despite the substantial drop seen in gross fixed capital formation (from -0.8% to -15.6%), primarily reflecting the drop in residential investment, which was the largest since Q1 of 1991 (-19.1%). Data on external trade also provided a positive surprise. Export growth gained further momentum (from 6.8% to 10.5%) while imports declined (from 5.6% to -2.2%). The fourth quarter also saw favourable inflationary developments: the consumer price index decreased by 0.9%, marking its first decline since 1961 and primarily reflecting the drop in energy prices, which was also corroborated by the core index excluding food and energy that increased by 1.9%. In 2006, GDP growth in the USA totalled 3.3%, slightly more than the year before (3.2%). The actual economic growth was also slightly higher than the IMAD's autumn assumption (3.2%). Compared with 2005, 2006 saw a deceleration in the growth of private consumption (from 3.5% to 3.2%), investment (from 5.4% to 4.2%) and imports (from 6.1% to 5.8%). On the other hand, government spending accelerated (from 0.9% to 2.1%), as did exports (from 6.8% to 8.9%). The increase in consumer prices edged down slightly, from 2.9% to 2.8%. Although the slowdown in the housing market is still regarded as a major downside risk to GDP growth, the US economy is, according to the Federal Reserve, headed for a 'soft landing'. The sales of new homes dropped by 17.3% in 2006 over 2005 while the sales of existing homes decreased by 8.4%. The number of new homes fell by 12.9% in the year as a whole; the decline continued in January, when this figure plunged by 14.3% compared to December to hit its lowest monthly level in a decade. Data on issued building permits are similarly distressing: their number fell by 14.9% in 2006 and by 2.8% in January over December, which was regarded as a sign of stabilisation by some analysts. However, it more likely reflects the efforts of builders to reduce their backlog of unsold homes that rose to about 7 months' supply in the third quarter of 2006, compared with the average of about 4.5 months in 2005. This was also pointed out by the FED's governor in his regular report to the Congress, although he still advocated his 'soft landing' view, according to which economic growth should slow down to a level that will enable inflation to fall while preventing the beginning of a recession. He also hinted that the FED's key interest rate would remain unchanged for a while longer since the current monetary policy was designed to foster sustainable economic expansion and the gradual moderation of inflation. The FED also released GDP growth forecasts for 2007 (between 2.5% and 3.0%) and 2008 (between 2.75% and 3.0%). Various sentiment indicators confirm the considerable uncertainty surrounding the expectations for this year's economic growth in the USA. Both indexes measuring consumer sentiment increased in January. The Conference Board Index rose for the fourth consecutive month, and the Michigan University Index reached its highest value in three years in January. Investors appear to be similarly optimistic: the UBS index measuring their sentiment also reached its three-year high in January. On the other hand, a disturbingly low value of the ISM manufacturing index, which fell to below 50 for the second time in three months in January, may be signalling a looming recession. Graph: Year-on-year GDP growth rates in the USA, by quarter, % 4.0 3.5 3.0 2.5 2.0 ■ Actual growth ■ Consensus, Dec. 2006 > European Commission, Nov. 2006 Q1 2005 Q2 Q3 Q4 Q1 2006 Q2 Q3 Q4 Q1 2007 Q1 2008 Sources of data: US Bureau of Economic Analysis (Feb. 2007), European Commission (Nov. 2006), Consensus Forecast (Dec. 2006). Balance of Payments - Current Account Slovenian Economic Mirror IMAD No. 2/2007 p. 6 Balance of Payments, Jan-Dec 2006, EUR million Inflows Outflows Balance1 Balance Jan-Dec 2005 Current account 21,948.5 22,721.3 -772.8 -547.5 Trade balance (FOB) 16,991.4 18,102.7 -1,111.2 -1,025.9 Services 3,508.5 2,651.5 857.0 855.6 Transport 1,050.4 594.9 455.4 398.0 Travel 1,501.8 850.3 651.5 678.4 Other services 956.4 1,206.3 -249.8 -220.7 Labour and capital income 736.2 1,083.5 -347.3 -283.1 Current transfers 712.4 883.6 -171.3 -94.1 Source of data: BS. Note: 1minus sign (-) in the balance indicates a surplus of imports over exports in the current account and an increase in assets in the capital and financial account and the central bank's international reserves. According to preliminary data, Slovenia's current account deficit in 2006 totalled 2.6% of the GDP estimate from the Autumn Report. For the fourth year in a row, the deficit in current transactions, which also equals the difference between gross domestic savings and gross domestic investment, was mostly financed by the private sector's net borrowing abroad. Thanks to the strong growth of export revenues, which has prevented any major upward pressures on gross external debt, the deficit level has been sustainable in the long run. Given the somewhat slower nominal growth of export (15.1%) than import flows (15.4%) the deficit in external trade increased year on year, mainly as a result of the higher trade deficit with the EU countries. In 2006 over 2005, exports of goods increased by a nominal 16.1% (by 17.1% to the EU countries and by 14.1% to non-member states). The growth of exports to the EU is estimated to have contributed 11.6 p.p. or 72% to the total growth of goods exports. The share of Slovenia's export of goods to the EU countries thus increased some more, from 67.9% to 68.4%. Import flows similarly recorded robust growth last year. Imports of goods rose by a nominal 15.5% in 2006 over 2005 (by 14.5% from EU countries and by 19.9% from non-member states). The average shares of imports in exports, investment and private consumption are estimated to have increased in 2006. According to the national accounts data (for the first three quarters of 2006), the share of intermediate goods' imports in goods exports rose by 0.2 p.p. in year on year terms, to 65.0%. The increase of the import component in investment consumption (from 34.5% to 36.2%) was largely the result of the stronger growth of investment in machinery and equipment. As the share of consumer goods imports in domestic private consumption increased by 1.7 p.p. year on year to total 25.8%, the import component of consumer goods also saw an increase. The latter was also linked to the globalisation of international markets whereby the domestic supply of consumer goods is being partly replaced by imported products. In addition to the quantity flows of exports and the increased growth of domestic consumption, the higher nominal growth of imports was also underpinned by the increase in import prices (rising oil prices, prices of other primary commodities and producer prices in the EU). We estimate that the terms of trade deteriorated slightly given that import prices rose somewhat faster (index 105.3) than export prices (index 105.2). The worsened terms of trade had a negligible effect on the increase in the trade deficit. Trade in services expanded at a slower pace than trade in goods in 2006. Compared to 2005, exports of services rose by 9.3% while imports of services were up 12.6% (nominal terms). The growth of services exports was largely driven by the group of other services and transport. Despite the robust growth in the group of other services, the changes in the structure of Slovenian exports are still too slow. The export share of this group of services accounts merely for a good quarter of services exports, compared to a good 50% in the EU. Other services and transport were also the most dynamic two groups regarding imports, which was linked to GDP growth and the increase in goods imports (also see p. 8). The deficit in factor incomes widened, chiefly due to higher net expenditures from investment income. Within incomes, the largest increase was recorded in commercial banks' earned interest as a result of their intensified lending to the rest of the world and capital exports in the form of investment in debt securities. On the expenditure side, the biggest increase was seen in interest payments on external debt due to the banks' extensive borrowing. Payments of dividends and undistributed profits to foreign investors rose appreciably. Data on reinvested earnings for 2006 are not available yet. The BS has changed its method of estimating reinvested earnings for the current year in accordance with the ECB directive. The three-year monthly average of actual data on total earnings excluding extraordinary items is decreased by dividends and other profits paid in the current month. The deficit in current transfers widened, mainly due to the higher deficit in the private sector's transfers. The latter was largely generated by the deficit in other transfers (where the surplus in legacies, rents and disability allowances was insufficient to cover the deficit in income tax, property tax and social contributions) totalling EUR 60.1 m (compared to the surplus of EUR 15.8 m in 2005). According to preliminary data from the Ministry of Finance, the cumulative surplus of the Slovenian tax budget relative to the EU budget totalled EUR 62.2 m in 2006. Slovenia received EUR 350.2 m from the EU budget (78% of planned funds) and paid EUR 287.9 m to the EU budget (92% of planned payments). Balance of Payments - Capital & Financial Account Slovenian Economic Mirror IMAD No. 2/2007 p. 7 Balance of Payments, Jan-Dec 2006, EUR million Inflows Outflows Balance1 Balance Jan-Dec 2005 Capital and financial account 6,105.7 -5,150.3 955.5 403.7 Capital account 209.7 -325.6 -115.9 -113.9 Capital transfers 206.2 -318.5 -112.3 -109.2 Patents, Licences 3.5 -7.1 -3.6 -4.7 Financial account 5,896.0 -4,824.7 1,071.3 517.6 Direct investment 264.2 -567.8 -303.6 -58.5 Portfolio investment 685.0 -2,143.1 -1,458.0 -1,618.3 Financial derivatives 0.0 -12.5 -12.5 -9.9 Other investment 3,666.0 -2,101.3 1,564.7 2,393.1 Assets 0.0 -1,925.1 -1,925.1 -1,530.7 Liabilities 3,666.0 -176.2 3,489.8 3,923.8 International reserves (BS) 1,280.8 0.0 1,280.8 -188.8 Statistical error 0.0 -182.6 -182.6 143.8 Source of data: BS. Note: minus sign (-) in the balance indicates the surplus of imports over exports in the current account and the rise in assets in the capital and financial account and the central bank's international reserves. In the previous decade Slovenia was already strongly integrated in international trade flows, but the volume of its capital flows rose particularly strongly in 2003 when the restrictions on capital flows with the rest of the world were fully lifted. Capital flows strengthened further in 2006. While the increase in the capital account assets was negligible, the structure of the financial account changed considerably. Financial transactions (excluding international reserves) recorded a net capital outflow in the amount of EUR 209.5 m in 2006 (compared with the net capital inflow of EUR 706.4 m in 2005). Net capital exports (excluding reserve assets and net errors and omissions) was largely the result of the higher investment in securities abroad, coupled with the lower borrowing in the form of long-term loans. The inflow of direct investment was modest in 2006; equity capital predominated (87.7%), the rest was net liabilities to affiliated enterprises. Outward direct investment picked up, particularly to the countries of former Yugoslavia. The falling share of Slovenian goods exports to the region indicates that Slovenia is compensating for some of its previous exports with local production in these markets (market-seeking). The inflow of foreign investment to domestic securities focused mostly on government sector bonds and debentures in 2006, whereas government net repaid loans taken out abroad. The increase in outward portfolio investment, which recorded the highest outflow of all capital outflows, was partly linked to the limited investment possibilities on the domestic capital market. Capital exports in the form of investment in securities picked up in both domestic banks and enterprises and mostly comprised debt securities. Within other investment, the main outflows were currency and household deposits while inflows largely consisted of the private sector's borrowing. The outflow of foreign currency via the household sector, which has been taking place for the fifth consecutive year with minor fluctuations, represented that part of foreign currency that is outside the domestic bank system. These include foreign currency savings kept at home and in foreign bank accounts. The latter were included with the latest methodological changes of the balance of payments. The private sector's indebtedness largely comprised the banking sector's borrowing whose inflow of received loans and non-residents' deposits declined. Although the estimated financing costs, represented by interest rates, did not differ significantly in domestic and foreign banks, and although interest rates have exhibited a rising trend since Q4 of 2005, enterprises and NFI increased their direct borrowing abroad. Foreign exchange reserves fell due to the deficit in the current account and net capital exports. At the end of 2006, reserve assets totalled EUR 8,004.9 million and were sufficient to cover 4.6 months' worth of average imports of goods and services. Despite the growing short-term and particularly long-term external debt - according to preliminary data, the total gross external debt represented 80.5% of the estimated GDP for 2006 - the level of total foreign exchange reserves sufficed to cover both short-term debt by remaining maturity and the current account deficit. Graph: Financing the current account of the balance of payments, EUR million 3000 2000 c 1000 o Ë 0 tr Öj -1000 -2000 -3000 Reserve assets Other investment Financial derivatives Investment in securities 2000 2001 2002 2003 2004 Source of data: BS. 2005 2006 Ij>j>j>j>j>a Direct investment i i Capital account and statistical error Net capital flows Trade in Services Slovenian Economic Mirror IMAD No. 2/2007 p. 8 Trade in services, EUR million (current prices) Exports of services Imports of services Balance % nominal growth 2006/2005 2005 2006 2005 2006 2005 2006 Exports Imports Total services 3,209.7 3,508.5 -2,354.1 -2,651.5 855.6 857.0 9.3 12.6 Transport 922.8 1,050.4 -524.9 -594.9 398.0 455.4 13.8 13.4 Travel 1,448.0 1,501.8 -769.6 -850.3 678.4 651.5 3.7 10.5 Other services 838.9 956.4 -1,059.6 -1,206.3 -220.7 -249.8 14.0 13.8 Communications services 90.8 91.8 -109.4 -107.2 -18.6 -15.3 1.1 -2.1 Construction services 107.4 101.6 -64.0 -67.7 43.4 33.9 -5.4 5.7 Insurance services 11.3 12.4 -15.5 -18.6 -4.2 -6.1 9.7 19.7 Financial services 18.1 27.9 -36.1 -42.9 -18.0 -15.0 54.4 18.9 Computer and IT services 90.9 97.0 -100.8 -113.4 -9.9 -16.4 6.7 12.4 Licences, patents, copyrights 13.2 13.8 -91.1 -122.2 -77.9 -108.4 4.5 34.2 Other business services 479.1 576.9 -572.2 -648.8 -93.1 -71.9 20.4 13.4 -Merchanting 105.1 170.1 -58.4 -65.6 46.7 104.5 61.8 12.3 Personal, cultural & recreation services 22.9 29.4 -49.4 -60.9 -26.5 -31.4 28.3 23.1 Government services 5.1 5.6 -21.0 -24.7 -15.9 -19.1 10.7 17.9 Source of data: Bank of Slovenia (preliminary data for 2006); calculations by IMAD. Exports and imports of services rose at a much slower pace in 2006 than trade in goods (also see p. 6). Although the growth of services exports was relatively favourable last year, it is evident that it could not keep up with the brisk growth of goods exports. The share of services exports in the total exports of goods and services consequently fell to its lowest level thus far in 2006, to 17.1%. Like in 2005, exports of other services rose at the fastest pace (particularly merchanting, financial services and personal, cultural and recreation services; see the table). A similarly strong increase was recorded in exports of transport services, whereas exports of travel recorded the lowest growth due to several factors. The two main reasons were the stagnation of the inflow from casinos and the decline in the border shop sales. Within imports of services, the highest growth in 2006 was similarly recorded in other services, notably licences, patents and copyrights, whose imports surged by 34.2%, as well as personal, cultural and recreation services (see the table). Imports of transport services rose slightly less than their exports in 2006, which resulted in an increase in the surplus of transport services trade. Travel continued to generate the largest proportion of the surplus in external trade, although it shrank by close to EUR 30 m in 2006 over 2005. As a result of this decrease, coupled with the growing deficit in trade in other services, the surplus in services trade as a whole remained almost the same as in 2005, after having recorded continued hikes throughout the 20032005 period. The competitiveness of Slovenian services on external markets has been on the upswing recently. Between 2003-2005, the market share of Slovenian services in total services imports in the EU-15 grew by 32%, which is more than the average share of the new Central and Eastern European member states (CEE). The only CEE country that outperformed Slovenia was Slovakia with a 50% increase of its market share (see the graph). We should single out particularly the expansion of the market shares of Slovenian transport services and other services in EU-15 imports. In transport services, Slovenia achieved the highest increase in the market share among the new CEE member states, whereas in other services it was only outperformed by Estonia. Within other services, Slovenia recorded the highest increase in its market share in the EU-15 imports in insurance, communication, computer and information services. Graph: Market shares in 2005 and their changes in EU-15 services imports between 2003 and 2005, % 70 60 50 40 30 20 10 40 -10 -20 -30 1.0 0.9 0.8 r 07 0.6 0.5 0.4 0.3 0.2 0.1 0.0 Czech R. Estonia Latvia Lithuania Hungary Poland Source of data: Eurostat, calculations by IMAD. Slovenia Slovakia □ Services total □ Transport services Other services • Services' total market share, right axis Price Trends & Policy Slovenian Economic Mirror IMAD No. 2/2007 p. 9 Price indices 2006 2007 Dec 2006/ Dec 2005 O (Jan 06-Dec 06)/ O (Jan 05-Dec 05) Jan 2007/ Dec 2006 Jan 2007/ Jan 2006 O (Feb 06-Jan 07)/ O (Feb 05-Jan 06) Consumer prices (CPI) 102.8 102.5 99.3 102.7 102.5 Goods 102.1 102.0 98.7 101.6 102.0 Fuels and enerqy 103.9 108.2 98.1 100.2 107.2 Other 101.7 100.5 98.8 101.9 100.8 Services 104.3 103.4 100.7 104.9 103.6 Consumer prices (HICP) 103.0 102.5 99.5 102.8 102.6 Administered prices' 102.1 105.8 98.8 100.7 105.2 Energy 103.7 108.0 97.9 99.8 107.0 Other 97.9 100.2 101.1 102.7 101.0 Core inflation2 Trimmean 102.7 102.8 99.3 102.3 102.8 Excluding food and energy 102.0 101.2 99.4 102.4 101.4 Producer prices (IPI) 102.8 102.3 100.6 103.5 102.5 Intermediate goods 104.1 103.5 100.8 104.8 103.8 Investment goods 100.8 100.2 100.5 101.8 100.3 Consumer goods 101.7 101.5 100.5 102.4 101.6 Inflation in the euro area Consumer prices (MUICP) 101.9 102.2 99.5 101.8 102.1 Excluding food, energy, tobacco, alcohol 101.5 101.4 99.1 101.7 101.5 Producer prices (IPI) 104.1 105.1 100.03 104.13 105.13 Sources of data: CPI, HICP, IPI: SORS; administered prices and core inflation: IMAD's estimate; MUICP, IPI in the EU: Eurostat (provisional data) and IMAD's recalculation. Notes: figures do not always add up due to rounding; figures are not directly comparable between the years due to the annual changes of the administered prices index; 2due to modernisation of the calculation method, data on core inflation measured by the trimmean are fully comparable from the Slovenian Economic Mirror May 2006 issue onwards; figure for the previous month. For the third year in a row, prices fell substantially in January. The decrease this year totalled 0.7%. Since that was more than the decrease in January 2006 (-0.5%), year-on-year inflation also declined to total 2.7% in January. Average inflation remained at the December level, at 2.5%. January's deflation was mainly underpinned by winter sales of clothing and footwear. January's price decrease was the result of seasonal factors that are becoming increasingly comparable between the years. The largest decrease was observed in the prices of clothing and footwear (-11.9%), which reduced inflation by 1.0 p.p. Within the housing group electricity prices declined by 0.8%, inter alia due to the lower price of electricity network use. On the other hand, the prices of utilities rose (by 1.6%); waste collection in Ljubljana, for example, was marked up by 5% due to the launching of separate collection of organic waste. January also witnessed a rise in the prices of food and non-alcoholic beverages (up 1.7%), which added 0.3 p.p. to the overall price increase. Preliminary analyses show that the contribution to inflation of price rises that can be linked to the adoption of the euro in Slovenia was comparable to corresponding contributions in euro area countries. The share of goods whose prices rose was higher in both December 2006 and January 2007 than in December 2004 and 2005 as well as in January 2004, 2005 and 2006. In January this year, this share was significantly higher than the average share of these goods in the last three years (except in March). On the other hand, the share of goods whose prices decreased in January was also the highest in three years. The share of goods whose prices remained unchanged was therefore the smallest in this period. Nevertheless, the price increase of services in restaurants and cafes can be largely associated with euro adoption and explained by corrections and the rounding-up of prices. After prices increased by 1.8% in December 2006, their increase in January totalled 1.4%. The sum total of these services' contributions to inflation for both months totals 0.18 p.p. but is not entirely attributable to the euro changeover. In addition to that, December and January recorded several unusual price increases that contributed a total of less than 0.1 p.p. to inflation and were also not necessarily linked to the currency changeover process. Experience from other EMU countries suggests that the majority of changes related to the changeover of currencies took place in the month prior to euro adoption and immediately after it. Between 80% and 90% of the total price increase associated with the currency changeover was recorded in those two months. The IMAD therefore estimates that the overall contribution of the price increase attributable to the introduction of the euro in Slovenia to inflation was just slightly above 0.2 p.p. (in December 2006 and January 2007). Graph: Price index of services in restaurants and hotels Source of data: SORS, calculations by IMAD. Labour Market Slovenian Economic Mirror IMAD No. 2/2007 p. 10 thousands % growth Selected labour market indicators Jan- Jan- Dec Dec Dec 06/ Jan-Dec 06/ O 2005/ Dec 05 Dec 06 2005 2006 Nov 06 Jan-Dec 05 O 2004 Registered labour force (A=B+C) 905.0 910.7 906.1 911.3 -0.5 0.6 0.5 People in formal employment 813.1 824.8 813.6 833.0 -0.4 1.4 0.7 in enterprises and organisations 666.2 675.1 666.7 681.7 -0.4 1.3 1.1 by those self-employed 65.4 66.5 64.8 67.5 -1.6 1.7 -0.3 self-employed and farmers 81.5 83.3 82.0 83.8 0.0 2.1 -1.9 Registered unemployed 91.9 85.8 92.6 78.3 -0.7 -6.6 -1.0 women 49.4 47.0 49.7 42.6 -1.6 -4.9 0.4 aged over 40 40.1 39.7 40.0 37.7 0.2 -0.9 0.9 unemployed over 1 year 43.4 41.9 42.9 39.7 -0.6 -3.6 1.4 Rate of registered unemployment (C/A), % 10.2 9.4 10.2 8.6 - - - male 8.5 8.9 8.6 7.1 - - - female 12.1 12.0 12.2 10.5 - - - Job vacancies 16.9 19.0 16.7 15.9 -6.2 12.3 19.9 for a fixed term, % 75.6 75.3 72.1 76.4 - - - No. of people hired 11.4 13.0 9.4 9.1 -26.9 13.8 12.8 Lower education 3.3 3.9 2.5 2.6 -26.4 19.4 10.6 Secondary education 6.3 7.1 5.4 5.2 -26.8 13.8 13.3 Tertiary education 1.9 2.0 1.5 1.3 -28.0 4.3 14.8 Sources of data: SORS, ESS, IMAD's calculations. Note: persons in employment according to administrative sources. Like every year, the number of people in formal employment also fell in December 2006. Formal employment was 0.4% lower than in November and 2.4% higher than in December 2005 at the annual level. December's decline in employment is a normal seasonal phenomenon caused by dismissals of people on fixed-term contracts and the ending of most community work schemes. The number of people in employment according to the survey decreased in the final quarter of 2006 but remained higher than in 2005. Compared with the previous quarter, survey employment dropped by 18,000 persons or 1.8%, whereas it remained 3,000 or 0.3% higher than in Q4 of 2005. Last year's increase in employment was higher than we projected in autumn. The average number of formally employed people in 2006 (824,839) was 1.4% higher than in 2005, whereas the average number of the employed according to the labour force survey (961,000) was 1.3% higher than the year before. In both cases, this is 0.4 p.p. more than we projected in autumn. Like GDP growth, the growth of formal employment was the highest since 1999 last year. Formal employment rose especially in construction and business services in 2006 (as well as in 2005). Relative to 2005, formal employment rose by 7.5% in construction (also see p. 14) and by 6.7% in business services (within the latter, over a quarter of the increase was generated by the rise in the number of people working in temporary employment agencies). Employment also rose in most other activities except mining and manufacturing, where it fell, and agriculture, fishing, electricity, gas and water supply, and private households, where it remained more or less unchanged. The decrease in manufacturing totalled 1.7% and was most notable in the textile (-11.8%), food-processing (-6.9%) and leather (-5.4%) industries. The biggest increase (by 4.0% or 1,600 persons) was registered in the metal industry. The growth of employment in construction and business services accounted for almost 80% of the overall increase in formal employment observed in 2006. December's layoffs affected the increase in registered unemployment in January. The main reason for this increase, which was not substantial (1,666 persons or 2.1%), was the seasonal layoffs in December (3,684 people employed for a fixed-term and 1,077 people from the community works schemes). The number of all other people who registered as unemployed in January due to having lost work was 2,846. The number of first-time job-seekers was within a seasonally usual range (1,252). The number of unemployed people who found work rebounded in January (to 5,148) after the seasonal fall in December. The number of the unemployed was reduced by 2,045 persons in January for various other reasons. There were thus 79,968 people registered as unemployed in January. After the seasonal decrease in December, the number of vacancies and people hired rebounded appreciably in January. The former increased to 20,015 (up 4.3% from January 2006), the latter to 13,477 (down 10.4% from January 2006). Graph: Persons in formal employment, by month, 2003-2006 840 830 820 810 800 790 Jun Jul Source of data: SORS. B C D E F Labour Market - Unemployment in 2006 Slovenian Economic Mirror IMAD No. 2/2007 p. 11 Flows in registered unemployment Thousands Growth in % 2002 2003 2004 2005 2006 2003 2004 2005 2006 A No. at the beginning of the year 104.3 99.6 96.0 90.7 92.6 -4.5 -3.6 -5.5 2.0 Total inflows during the year 87.4 94.2 95.6 94.4 90.2 7.9 1.4 -1.2 -4.4 - first-time job-seekers 21.4 25.4 26.0 21.7 18.6 18.7 2.2 -16.6 -14.1 B - loss of fixed-term employment 32.9 32.2 33.1 34.5 33.4 -2.0 2.6 4.4 -3.4 - other layoffs 33.1 36.6 36.5 32.7 30.4 10.6 -0.2 -10.5 -6.9 - transfer from other registers 0.0 0.0 0.0 5.6 7.9 - - - 41.2 C Total A + B 191.7 193.9 191.6 185.1 182.8 1.1 -1.2 -3.4 -1.3 Total outflows during the year 92.1 97.9 100.8 92.6 104.5 6.3 3.0 -8.2 12.9 - found work 52.2 50.5 54.3 53.9 57.4 -3.2 7.4 -0.7 6.6 as a % of C 27.2 26.1 28.3 29.1 31.4 - - - - - struck off for other reasons 34.2 39.6 44.3 35.2 42.2 15.8 11.8 -20.5 19.7 as a % of C 17.8 20.4 23.1 19.0 23.1 - - - - D of which: voluntary sign-offs 5.2 5.6 4.9 4.6 5.9 6.5 -12.0 -6.5 29.5 education 5.9 7.2 7.3 5.1 4.0 23.0 0.6 -29.3 -22.1 retirement 6.9 5.0 4.3 3.3 4.0 -27.9 -12.5 -22.9 20.8 other transitions to inactivity 2.5 1.9 4.7 4.2 4.4 -24.3 149.7 -11.8 6.7 neglect of duties 10.3 15.8 19.2 15.0 18.8 52.2 21.7 -21.6 25.1 other 3.4 4.2 3.9 3.0 5.0 24.6 -7.4 -23.7 65.9 - transfer to other registers 5.7 7.7 2.3 3.5 4.9 35.4 -70.6 52.4 41.2 E No. at the end of the year (E=C-D) 99.6 96.0 90.7 92.6 78.3 -3.6 -5.5 2.0 -15.4 Source of data: ESS; calculations by IMAD. The declining trend in the number of the unemployed and unemployment rates that had come to a halt in 2005 continued in 2006. In December, 78,303 people were registered as unemployed at the Employment Service of Slovenia. Their number fell by 15.4% from December 2005 and was the lowest since August 1991. On average, 85,836 people were registered as unemployed in 2006, 6.6% fewer than in 2005. The registered unemployment rate, which totalled 10.2% at the end of 2005 and in the year on average, decreased to an average of 9.4% in 2006 and to 8.6% at the end of the year. 2006 also saw a decline in the average annual number of people unemployed according to the survey (ILO definition): from 67,000 in 2005 to 61,000. The survey unemployment rate, which remained the same in the third and fourth quarters of 2006 (at 5.6%), decreased from 6.5% in 2005 to 6.0%, according to our calculations. The decline in unemployment in 2006 was mostly underpinned by the strong economic activity, whereas the decrease in registered unemployment was also linked to administrative reasons. 18,597 first-time job-seekers and 63,767 people who lost work registered as unemployed in 2006, down 14.1% and 5.1%, respectively, from 2005. Among the latter, 52.3% lost their fixed-term jobs, 16.9% were laid off for business reasons (these two shares are still increasing), 10.8% quit their job voluntarily, 4.9% remained without work because of their company's bankruptcy, and 15.2% were left jobless for other reasons. 57,423 unemployed people were hired, i.e. 6.6% more than in 2005. A total of 42,183 unemployed people were struck off the unemployment registers for various administrative reasons (19.7% more than the year before), while 4,883 unemployed were transferred to other records that were set up in 2002 in accordance with the Employment and Insurance against Unemployment Act. On the other hand, 7,853 people from those records were re-registered in the unemployment register in 2006. Most removals from the register were related to the neglect of an unemployed person's duties. There were 18,811 such cases in 2006; 13,748 thereof were struck off because they were unavailable for work. The number of registered unemployed with a higher education and those aged over 50 continues to increase. In 2006, there were on average 7,561 of the former (7.6% more than in 2005 and 60.6% more than in 2001, when their number was the lowest after 1991) and 21,762 of the latter (4.2% more than in 2005). The share of women among the unemployed has also been rising for several years, and the share of the long-term unemployed has increased for the second consecutive year, although their number is falling. In 2006, the share of women averaged 54.8% (only 43.8% among the employed) while the share of long-term unemployed was 48.8% (47.3% in 2005). The number and share of the unemployed without a secondary education continued to decline. Graph: ILO and registered unemployment rates, 1995-2006 16.5 14.5 12.5 10.5 8.5 6.5 4.5 ILO - total ILO - male ILO - female Registered Registered - male Registered - female - 1995 1996 1997 1998 1999 2000 2001 Source of data: SORS. 2002 2003 2004 2005 2006 Earnings Slovenian Economic Mirror IMAD No. 2/2007 p. 12 Gross wage per employee, growth index Wages in In nominal terms In real terms1 SIT Dec 06/ Dec 06/ Jan-Dec 06/ Dec 06/ Dec 06/ Jan-Dec 06/ Dec 2006 Nov 06 Dec 05 Jan-Dec 05 Nov 06 Dec 05 Jan-Dec 05 Gross wage per employee, total 302,207 90.5 104.0 104.8 90.1 101.2 102.2 Private sector (activities A-K) 284,972 87.8 104.2 105.4 87.4 101.4 102.8 A Agriculture 244,960 89.0 104.7 105.6 88.6 101.8 103.0 B Fisheries 226,221 79.8 93.7 107.9 79.5 91.2 105.3 C Mining and quarrying 350,142 75.3 102.8 104.5 75.0 100.0 101.9 D Manufacturing 258,417 88.2 104.7 105.5 87.8 101.9 102.9 E Electricity, gas and water supply 404,477 73.5 111.7 105.6 73.2 108.6 103.0 F Construction 245,003 90.2 103.2 106.2 89.9 100.4 103.6 G Wholesale, retail; certain repairs 276,686 93.9 105.6 105.6 93.5 102.7 103.0 H Hotels and restaurants 224,287 99.3 105.8 104.4 98.9 102.9 101.9 I Transp., storage & communications 315,296 83.0 91.9 103.6 82.7 89.4 101.0 J Financial intermediation 487,279 72.8 112.6 107.2 72.5 109.5 104.6 K Real estate, renting, business services 323,388 93.6 103.8 103.9 93.2 100.9 101.4 Public services (activities L to O) 352,211 97.7 103.6 103.5 97.3 100.8 101.0 L Public administration 350,213 99.2 103.3 103.1 98.8 100.5 100.6 M Education 369,042 99.7 104.5 104.8 99.3 101.7 102.2 N Health and social work 337,332 98.8 103.8 102.7 98.4 101.0 100.2 O Other social and personal services 342,534 86.6 101.1 102.1 86.3 98.4 99.7 Source of data: SORS and IMAD's calculations for the private sector and public services. Note: deflated by the consumer price index. After a substantial increase in November the gross wage per employee fell in December by 9.5% in nominal and by 9.9% in real terms. Earnings declined particularly in the private sector (A to K), by 12.2% in nominal and by 12.6% in real terms. 5.9% of workers received the '13th month's pay' (Christmas bonus) in December, corresponding to one-third of November's recipients. The decrease in the number of those receiving the 13th month's pay is the main reason for the lower level of December's average gross wage. Apart from that, December was also shorter in terms of the number of working days, which additionally contributed to the decline in gross wages. In November and December 2006 combined, around a quarter of workers received the 13th month's pay, which is more than in 2005 (21.6%). The average amount of this bonus totalled approximately 48% of the average gross wage, slightly less than the year before (49%). The highest shares of recipients of this bonus, around 90% of workers, were recorded in the activities of electricity, gas and water supply, and financial intermediation. Construction, distributive trades and hotels and restaurants characteristically have the lowest shares of employees who receive the 13th month's pay (below 20% of employees). Within the private sector, the gross wage per employee fell most remarkably in the group of business services (J, K). The fall totalled 14.6%, mostly because of the activity of financial intermediation where almost all workers (91.7%) were paid the Christmas bonus in November. The gross wage per employee in industry and construction (C, D, E, F) fell by 12.9%. A somewhat smaller decrease in gross wages (9.3%) was seen in production services (G, H, I). Within public services (L to O), the gross wage per employee decreased by a nominal 2.3% and by a real 2.7%. The largest drop was recorded in other community, social and personal services that have a predominantly commercial character and employees therefore receive the Christmas bonus (see the table). In 2006 as a whole over the year before, the average gross wage per employee rose by 4.8% in nominal and by 2.2% in real terms. Within the total growth, the gross wage in the private sector rose by a nominal 5.4% and by a real 2.8%, while the gross wage in the public services sector rose by 3.5% and 1.0%, respectively. The IMAD's Autumn Report projected somewhat higher nominal growth of the gross wage per employee (5.0%), whereas the projected real growth of gross wages was consistent with the actual annual growth due to the slightly higher projection of the inflation. The estimated overall nominal increase in wages was based on the slightly higher estimated nominal growth of gross wages (5.8%) in the private sector as a result of the projected somewhat faster growth of wages in the second part of the year. The impact of the lower estimated nominal growth of wages in the public sector (3.1%) was smaller, representing only a quarter of the overall growth. In the public sector, the actual nominal growth was 0.4 p.p. higher than projected, particularly due to the increase in wages at the end of the year in public administration and health care. Only a fraction of the adjustment percentage of the public sector's gross wage is included in the actual nominal growth, since the other part is set aside for the elimination of wage disparities in the public sector in accordance with the agreed adjustment mechanism. A further contribution to the nominal growth of gross wages comes from work performance bonuses and promotions incorporated in the current wage system. In 2006, wages in the education sector were raised by 3% in July for the last time, as laid down in the annex to the collective agreement for this activity. At the annual level, this translated into the roughly 1.5 p.p. faster nominal growth of wages in the activity relative to other public services. Manufacturing Slovenian Economic Mirror IMAD No. 2/2007 p. 13 Growth rates, % Selected economic indicators Dec 2006/ Dec 2006/ Jan-Dec 2006/ Jan-Dec 2005/ Nov 2006 Dec 2005 Jan-Dec 2005 Jan-Dec 2004 Production value1 -17.5 4.7 7.5 3.5 - highly export-oriented industries'2 -15.0 7.4 8.7 6.8 - mainly export-oriented industries3 -21.2 5.2 9.4 3.9 - mainly domestic-market-oriented industries'4 -11.5 0.8 2.0 -0.8 Average number of employees -0.5 0.2 -1.7 -1.8 Labour productivity -17.1 4.5 9.3 5.4 Level of inventories5 -2.4 2.2 2.0 5.1 Turnover5 -15.0 5.1 5.9 4.8 New orders5 -4.4 -3.2 5.5 11.1 Industrial producer prices 0.5 3.4 2.3 2.7 - producer prices/inflation 0.1 0.6 -0.2 0.2 Source of data: SORS; IMAD's calculations. Notes: real growth calculated on the basis of data on production value - SORS' recalculation with the IPI (provisional data); Manufacturing industries (DG. DK. DM) which earn over 70% of their average net revenues from sales in foreign markets. according to data on Slovenian commercial companies from the AJPES (2005); Manufacturing industries (DB. DC. DD. DH. DJ. DL. DN) which earn 50% to 70% of their average net revenues from sales in foreign markets; "manufacturing industries (DA. DE. DF. DI) which earn less than 50% of their average net revenues from sales in foreign markets; 5real growth. December's fall in industrial production activity was seasonal. Production dropped by 17.5% compared with November, which was two working days longer, and was 0.4% higher according to seasonally and working-day adjusted data. At the year-on-year level, the volume of production increased by 4.7% in December, which was two working days shorter than the same month of 2005, and by 9.3% if controlled for working days. Manufacturing's industrial production enjoyed record-high growth last year. It rose by 7.5%. Seasonally and working-day adjusted quarterly data show that production growth remained strong in the second half of the year after having accelerated in the second quarter. It totalled 0.7% in Q1, 2.8% in Q2, 2.9% in Q3 and 2.6% in Q4 of 2006. The highest increases in production levels in 2006 were recorded in the four largest sub-industries of the manufacturing sector. The manufacture of electrical and optical equipment (DL) expanded its production from 2005 by 15.8%; it was followed by the manufacture of chemicals and chemical products (DG) with a 13.2% increase in production, the metal industry (DJ) with a 12.3% increase, and the manufacture of machinery and equipment (DK) whose production picked up by 8.9%. These sub-industries, which account for over 50% of the manufacturing sector, contributed as much as 6.6 p.p. or close to 90% to the overall increase in production. They are either highly (DG, DK) or mainly export-oriented (DJ, DL) and, with the exception of DJ, also belong to high- and medium-high technology industries according to the OECD methodology. Low-technology industries and industries that are mainly oriented to the domestic market achieved the poorest results. The former, which include the subindustries DA, DB, DC, DD, DE and DN, increased their levels of production by 1% last year. Industries that earn most of their revenues from sales in the domestic market increased their production volumes by 2% last year. Apart from DA and DE, which are also low-technology industries, this group also comprises DF and DI (the meaning of the abbreviations is explained on p. 22). Business optimism is still on the rise. According to the SORS' survey on business trends in manufacturing, the seasonally adjusted confidence indicator rose by 1.0 p.p. from January's high value and thus reached the highest level in the period observed (from 1996 onwards). The main contributor to the indicator's high value was the estimated level of total order books. The share of the surveyed enterprises expecting an improvement of the business climate was thus 15.0 p.p. higher than the share of those expecting a deterioration. Graph: Industrial production and employment in manufacturing according to technological intensity (left-hand graph) and according to the export orientation of industries, I-XII 2006/I-XII 2005 12 10 8 6 4 2 0 -2 --4 -6 vvvvvvv '//////J □ High and medium-high-tech industries □ Medium-low-tech industries □ Low-tech industries Production volume Employ ment -2 - -4 -6 ■////// Ivvvvw. □ Highly export-oriented industries □ Mainly export-oriented industries □ Mainly domestic market oriented industries Source of data: SORS, calculations by IMAD. Note: according to OECD methodology (Revision of the High-Technology Sector and Product Classification, 1997). Production volume Employ ment Source of data: SORS, calculations by IMAD. Note: according to OECD methodology (Revision of the High-Technology Sector and Product Classification, 1997). 12 10 Construction Slovenian Economic Mirror IMAD No. 2/2007 p. 14 Selected construction indicators, real indices Q4 2006/ Q4 2005 2006/ 2005 2005/ 2004 Value of construction put in place1 131.6 115.3 103.0 Buildings 130.2 114.0 110.3 Residential buildings 102.8 102.6 121.6 Non-residential buildings 138.6 117.7 107.1 Civil engineering 133.0 116.! 95.5 Value of the stock of contracts , (nominal) 194.9 194.9 90.1 Value of new contracts1 (nominal) 138.0 163.5 108.1 Number of people employed in construction 109.7 107.5 104.6 Average gross wage per worker employed in construction3 105.0 103.5 100.2 Sources of data: SORS, CCIS; calculations by IMAD. Notes: 1the analysis covers enterprises whose value of construction put in place totalled at least SIT 330 m according to the financial statements for 2004, divisions engaged in construction activity employing at least 20 workers, and several non-construction enterprises which carry out construction activity; 2end of period; 3deflated by the CPI. For the third consecutive quarter, construction activity picked up strongly in the final quarter of 2006. According to seasonally adjusted data, activity rose by 9.1% in Q4 over Q3. The value of construction put in place in larger companies (see the note under the table) was 31.6% higher in Q4 of 2006 than in the same period of 2005. The meteorological conditions had a favourable effect on this expansion. The growth of construction activity was the highest in 15 years. This robust growth was again driven by the construction of motorways, in addition to the pick-up in the construction of non-residential buildings, which reached its highest level since 1999. The value of construction put in place surged by 15.3% over 2005. Growth in civil engineering totalled 16.8%. The construction of buildings rose by 14.0%; within that, non-residential construction was up 17.7% while residential construction increased by 2.6%. Based on detailed data about the issued building permits we estimate that the construction of wholesale and retail trade buildings and hotels picked up last year. In interpreting the data on the value of residential construction put in place we note that these figures exclude the activity of smaller companies (see the note under the table), in which, in our estimate, the construction of buildings is the main activity. The number of workers in the construction sector rose sharply in 2006, especially in the final quarter. The number of people employed in construction was on average 7.5% higher in 2006 than in 2005. In the fourth quarter alone, it increased by as much as 9.7% over the year before. The number of employees by activity rose particularly in building completion; in the latter part of the year it also increased in general construction. In terms of employee status, the number of individual private entrepreneurs and their employees rose the most last year. The number of planned dwellings and the total planned floor area of buildings continued to increase in the final quarter of 2006. The planned floor area of new buildings and extensions was 27.5% higher than in the same quarter of 2005 (43.8% for nonresidential buildings and 16.9% for residential buildings). In 2006 as a whole, the total floor area of the planned buildings increased by 35.8%; within that by 19.7% for residential buildings and by 56.0% for non-residential buildings. The building permits issued last year were granted for the construction of 8,260 new dwellings, which is 19.6% more than in 2005 and 47.0% more than the average of the previous seven years (since these data have been available). Graph: Floor area and total number of dwellings planned by issued building permits (1999-2006) 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2,000 1,000 0 1999 2000 2001 2002 2003 Source of data: SORS. 2004 2005 2006 ] Total planned floor area of residential buildings Total planned floor area of non-residential buildings -Total number of dwellings planned by issued building permits (right axis) Agriculture - Production and Economic Accounts Slovenian Economic Mirror IMAD No. 2/2007 p. 15 2002 2003 2004 2005 2006* 06/05 (05/04) 06/02 (05/01) Production, thousand tonnes wheat and spelt 174.9 122.9 146.8 141.3 134.4 -4.9 -23.1 maize for grain 371.4 224.2 357.6 351.2 278.2 -20.8 -25.1 potatoes 166.0 107.6 171.5 144.7 107.9 -25.4 -35.0 sugar beet 232.2 202.1 213.1 260.1 246.4 -5.3 6.1 silage maize 1,066.1 900.6 1,209.7 1,473.0 1,008.2 -31.6 -5.4 vegetables 70.3 64.3 82.1 87.6 6.7 11.1 fruit 176.4 136.6 192.7 145.1 -24.7 -17.7 grapes 123.0 104.4 134.8 120.9 107.5 -11.1 -1.7 Number of livestock at the end of the year, in thousands cattle 473.2 450.2 451.1 452.5 451.3 -0.3 -4.6 pigs 655.7 620.5 534.0 547.4 575.1 5.1 -12.3 poultry 5,265.7 4,533.7 3,268.0 3,176.9 2,895.0 -8.9 -45.0 sheep and goats 129.4 129.0 142.3 154.8 159.3 2.9 23.1 Production of meat and milk, thousand tonnes/million litres cattle 44.6 50.1 45.0 44.2 -1.8 12.2 pigs 61.8 73.3 71.2 61.4 -13.8 5.7 poultry 53.1 56.8 52.9 55.0 4.0 1.7 sheep and goats 1.5 1.8 1.7 1.9 11.8 58.3 milk 706.4 642.4 631.5 639.8 1.3 1.6 Growth rates, % Source of data: SORS; IMAD's calculations. Note: 'provisional data. According to the Economic Accounts for Agriculture (EAA), the volume of agricultural production fell last year after two relatively favourable years. On the whole, it fell by 6%, whereas crop output alone dropped by 12% due to the poorer weather conditions. The production of cereals, maize, potatoes, sugar beet and grapes fell; only the fruit yield is estimated to have risen. The volume of meat production remained at the 2005 level. Slaughterhouses produced more beef and particularly pork but less poultry (detailed data on production are still unavailable). The number of poultry also fell according to the animal count at farms at the end of the year, whereas an increase was noted particularly in the number of pigs (see the table). The value of agricultural production at basic prices, which also include subsidies on products, remained at the level of the previous year in 2006 (in real terms). The value of crop output decreased by 1.2% while the value of livestock breeding increased by 1.0%. The reason why the combined value remained unchanged despite the lower volume of production was the increase in agricultural producer prices, which rose at a faster pace than living costs last year, after having lagged behind the growth of living costs for several years. These prices rose by a total of 4.6% (by 9.9% in arable crops and by 2.2% in livestock breeding). Higher prices also contributed to the higher value of the purchase of agricultural products, which was up 2.8% over the year before. The purchase value rose in livestock breeding (by 4.4%) and in wine and fruit growing (by 1.3%), whereas it fell in crop production (by 9.8%). According to the EAA, the value added of agriculture fell in real terms last year after having recorded relatively high values for two years. Its overall decrease totalled 5.5% (the comparable fall in the EU-25 was 5.1%). Apart from the unchanged value of production, this decrease was mainly based on the 4.4% higher value of intermediate consumption (2.4% higher in the EU-25). The prices of intermediate consumption rose less, by 3.5%. The dynamics of agricultural production values in Slovenia, the EU and the neighbouring countries Austria and Italy were similar in the last few years, yet they were more pronounced in Slovenia. 2002, a highly beneficial year (favourable weather conditions), was followed by the extremely bad 2003 (summer drought), whereas 2004 and 2005 were relatively good again. According to the first estimates of December 2006, the value of production was estimated to have decreased in Slovenia as well as Austria and Italy in 2006. The year was characterised by a belated and cool spring, a drought in July and an extremely chilly and rainy August. February's estimate shows that the value of Slovenia's production remained at the 2005 level last year, whereas estimates for other countries have still not been released (see the graph). Graph: Growth of agricultural production at basic prices, 1996=100, constant prices, according to EAA 120 115 110 105 100 95 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source of data: Eurostat, SORS. Note: the estimate for 2006 was made in February 2007 for Slovenia and in December 2006 for Austria and Italy. 2006 Selected Topics Slovenian Economic Mirror IMAD No. 2/2007 pp. 17-25 Pension Insurance Slovenian Economic Mirror IMAD No. 2/2007 p. 19 Selected data used in pension indexation Average annual amount in SIT Increase in % Jan-Dec 2005 Jan-Dec 2006 Jan-Dec 2006/Jan-Dec 2005 Pensions1, 2 old-age pensions3 120,352 126,046 4.7 disability pensions 91,644 95,073 3.7 family pensions 77,045 81,599 5.9 Reference data minimum pension base 102,677 107,862 5.1 total wages 277,279 290,635 4.8 wages in public services 330,580 341.999 3.5 Sources of data: ZPIZ, SORS; calculations by IMAD. Note: average annual amounts of pensions are recalculated from average monthly data on The indexation of pensions is the adjustment of pension levels to changed parameters in the economy. Indexation is based on reference data selected in accordance with the purpose defined by political commitment or social consensus. Reference data can either be prices, where the objective is to sustain the real purchasing power of pensions, or earnings, where the aim is to preserve a certain ratio between pensions and wages; it can also be a combination of both. Among all the provisions of pension regulations, the indexation of pensions is most often subject to change. This is not only true of Slovenia but of many other pension systems as well. Not all indexation rules are appropriate for all circumstances: the provisions on the frequency of indexation depend on the level of inflation, for instance, whereas the provisions on the level of indexation are based on the degree to which the current or long-term sustainability of public finances is taken into account. The current indexation rule in Slovenia was statutorily adopted in 2004 and became fully effective in 2006. According to this rule, pensions are fully indexed to wages, i.e. they increase by the same amount as wages do in a given period. This is achieved by raising the minimum pension base since that is the only way to ensure that each pension is raised by no more than the determined indexation rate. While pensions for any given year are calculated and disbursed within the year, data on wage growth are not available for all twelve months by the end of the year. To determine the annual indexation rate for the last indexation (carried out in November), it is therefore necessary to use an estimate of the annual nominal wage growth. According to the regulations, the IMAD's autumn forecast is used for this purpose. Once the data on December's wage growth are released in February, it is possible to calculate the actual annual increase in wages and evaluate the indexation system. The minimum pension base increased by 5.1% in 2006 while earnings rose by an average of 4.8%. The pension base also grew at a faster pace than average earnings in all periods of 2006. The gap between the two increases was even more pronounced in the public services sector where wages rose by an average of 3.5% in the year as a whole, and in other community and personal services (2.1%) and the manufacture of chemicals, chemical products and man-made fibres (2.4%). The increase in average pensions in a given year does not depend solely on the indexation rule. According to the principle of actuarial neutrality, the pensions of newly retired pensioners whose parameters are less favourable must not differ from existing pensions. Therefore - assuming a 40-year insurance period and the same indexation rate for both men and women - the existing pension rights are not raised by the total increase of the pension base. Instead, the indexation rate is reduced by a coefficient that reflects the relative change in the total accrual percentages accumulated in two consecutive years. In 2006, the indexation rate was thus reduced by 0.6 of a percentage point. Other factors that may contribute to the gap between the growth of pensions and wages include changes in the distribution of wage and pension levels. Taking into account all determinants of pension growth, Slovenia's average pensions rose by 4.7% in 2006. Graph: Year-on-year comparison of the increase in wages and in the minimum pension base, 2006 on 2005 106 105.1 Total wages -Lowest pension base 100 Jan Jan-Feb Jan-Mar Jan-Apr Jan-May Jan-Jun Jan-Jul Jan-Aug Jan-Sep Jan-Oct Jan-Nov Jan-Dec Sources of data: ZPIZ, SORS, calculations by IMAD. expenditure and recipients; excluding income support for pensioners; comments refer to old-age pensions only Household Electricity Slovenian Economic Mirror IMAD No. 2/2007 p. 20 Household electricity . 1 prices EUR/ kWh Household electricity . 1 prices PPS/ kWh Household electricity consumption per capita2 kWh Italy 0.1548 Slovakia 0.2080 Sweden 4,601 Germany 0.1410 Romania 0.1628 Finland 3,895 Luxembourg 0.1390 Poland 0.1598 Belgium 2,547 Portugal 0.1340 Portugal 0.1578 France 2,355 Ireland 0.1285 Italy 0.1508 Ireland 2,007 Netherlands 0.1240 Hungary 0.1448 Denmark 1,912 Cyprus 0.1221 Czech Republic 0.1401 Cyprus 1,779 Slovakia 0.1193 Malta 0.1386 Austria 1,765 Belgium 0.1136 Bulgaria 0.1366 Germany 1,701 United Kingdom 0.1103 Germany 0.1325 Luxembourg 1,644 Denmark 0.1072 Cyprus 0.1314 EU-27 1,589 EU-273 0.0991 Luxembourg 0.1217 United Kingdom 1,586 Malta 0.0985 EU-273 0.1201 Malta 1,548 Austria 0.0980 Lithuania 0.1176 Greece 1,523 Sweden 0.0975 Slovenia 0.1170 Slovenia 1,508 Spain 0.0949 Netherlands 0.1150 Netherlands 1,443 France 0.0905 Latvia 0.1080 Czech Republic 1,422 Poland 0.0882 Belgium 0.1079 Spain 1,360 Slovenia 0.0873 Estonia 0.1053 Estonia 1,199 Czech Republic 0.0837 Ireland 0.1038 Portugal 1,184 Finland 0.0826 Spain 0.1010 Italy 1,145 Hungary 0.0809 United Kingdom 0.0999 Bulgaria 1,127 Romania 0.0809 Austria 0.0928 Hungary 1,092 Greece 0.0643 France 0.0834 Slovakia 895 Estonia 0.0635 Sweden 0.0803 Latvia 634 Lithuania 0.0609 Denmark 0.0787 Lithuania 601 Latvia 0.0584 Greece 0.0735 Poland 597 Bulgaria 0.0527 Finland 0.0727 Romania 371 Source of data: Eurostat; calculations by IMAD. Notes: typical user with a consumption of 3,500 kWh per year (1,300 kWh at night): prices without The Slovenian price of household electricity measured in euros is not significantly lower than the average price in the EU-27, especially if the prices of individual countries included in the calculation are non-weighted. In July 2006, the price of electricity without tax for a typical household that uses 3,500 kWh of power annually (1,300 kWh thereof at the reduced rate) was 11.9% lower than the non-weighted average of the EU-27 (and by 21.6% lower than the weighted average of the EU-25, where the size of consumption in every country is taken into account). As a rule, older EU members have higher prices, while Eastern European countries have lower prices. Exceptions include Slovakia with a high price, and Finland and Greece with lower prices. Nine countries in the EU-27 had lower household electricity prices than Slovenia. On the other hand, the price in France, the largest European electricity exporter, was just 3.7% higher than in Slovenia. Measured in purchasing power standards, the Slovenian household electricity price is almost equal to the average EU price. In July 2006, the electricity price without tax for a typical household user measured in this way was only 2.6% lower than the non-weighted average of prices in the EU-27. Taking into account the purchasing power in individual countries, Italy and Germany no longer have the highest prices in the EU. These are now found in Slovakia, Romania and Poland (see the table). The Slovenian price of household electricity, measured in SIT/kWh, is lower than the average European price by approximately as much as Slovenian prices in general. According to the latest available data (for 2005), the general level of all prices (of goods included in GDP) was 28.1% lower than the comparable level of prices in the EU, whereas the goods included in household final consumption expenditure were 25.5% cheaper in Slovenia. Due to the incomplete and regionally segmented electricity markets and the varying degree of regulation for households across the EU, it is somewhat disputable to talk about a market price of household electricity. The pace of the electricity market's liberalisation in Slovenia is similar as in other EU countries. The largest players, particularly in the production market, still hold a dominant market position. However, this is not exceptional in the EU: according to Eurostat's data, the market share of the largest electricity producer on the domestic market totalled 53.0% in Slovenia, compared with the average 62.6% in the EU. The concentration of providers in the retail market in Slovenia is much smaller, and the competition in the supply of electricity over the distribution network is expected to increase further in future. However, the national Energy Agency's report on the situation in the energy sector identified some discriminatory actions by distribution companies against new providers entering tax in July 2006; data for 2004; non-weighted price average for the EU-27 countries Household Electricity Slovenian Economic Mirror UMAR No. 2/2007 p. 21 the market (this remark refers to energy supply to eligible customers that will include households as of 1 July 2007). Electricity markets in Slovenia are therefore still not sufficiently competitive. Moreover, the EU single electricity market is not fully operative yet. It is partly divided into several loosely inter-connected regional markets. In this view it is difficult to talk about a single European market price of electricity since massive energy flows between the mentioned markets are prevented by the bottlenecks posed by limited cross-border transmission capacities. The marked differences in household electricity prices found across the member states are a further indication that the EU electricity market is still not fully functional. Eurostat's data show that the difference between the highest (Italy) and the lowest price (Bulgaria) of electricity for households is approximately 2.9-fold. The differences between Slovenia and its neighbouring countries are similarly striking. The Italian and Austrian prices are a respective 77.3% and 12.3% higher than the Slovenian price, whereas the price in Hungary is 7.3% lower than in Slovenia. These differences show that household electricity prices in individual countries depend on specific economic conditions. We can therefore hardly say that these prices are determined by the market; they seem to be much more influenced by other factors. In most countries prices at the power exchange, serving as proxy market prices, are only partly used as the basis of final household electricity prices. We examined the impact of the recent increases in electricity prices for base load consumption on the German power exchange EEX in Leipzig on the increase in the final prices of household electricity in the EU. In most EU countries, the changes in power exchange prices only translate into changes of final prices to a minor degree. From January 2005 to July 2006, the power exchange price of electricity for base load consumption rose by 47%, whereas the average final price of household electricity rose by less than 9%. Moreover, differences in final household electricity prices are significant even if we compare those prices in countries that conduct a great deal of trade in energy on the same power exchange, i.e. whose final price is supposedly largely determined by one and the same power exchange price. For example, the German price of household electricity (without tax) exceeds the Austrian price by as much as 44%, whereas the Austrian price is only 12% higher than the Slovenian price. Consumption of household electricity is not very high in Slovenia. There is also no indication that it is excessively intense. Although electricity consumption rose rapidly in Slovenia between 1996 and 2004, this increase was mainly linked to the robust growth in industry; household consumption, on the other hand, rose moderately, by 1.7% per year on average (industrial consumption by 4.4%; also see the graph). Per capita household electricity consumption in Slovenia totalled 1,508 kWh in 2004, 5.1% less than in the EU-27 on average. Slovenian households also do not use electricity any more intensely or uneconomically than they use other energy sources. Household electricity consumption per unit of GDP was 58.8% higher in Slovenia than in the EU-27, final energy consumption intensity was 60.3% higher, whereas Slovenia's overall energy intensity exceeded the EU level by 58.2%. On the whole, distribution companies have been operating with solid profits over the last several years. The performance of the transmission company and production plants has also been fairly successful. Losses were only recorded in a fraction of the distribution companies that perform the public utility of supplying power to tariff consumers. According to the national Energy Agency, these losses totalled a respective SIT 4,836 m and 5,200 m in 2004 and 2005. Other distribution activities (i.e. the activity of the distribution network system operator and the commercial activity of electricity supply to eligible customers) operated with a profit. The overall performance of distribution companies was positive in both years; the profits totalled SIT 5,822 m in 2004 and SIT 4,420 m in 2005. Within that, large production companies, including the HSE, generated a respective SIT 17,377 m and 13,824 m of profits, whereas the transmission company operated at a profit of SIT 1,685 m and 2,153 m, respectively. The overall performance of the Slovenian electricity sector in the last few years can therefore be regarded as successful. Graph: Average annual increase in electricity consumption in the EU-27, 1996-2004 6 1 5 -4 -3 -2 -1 -0 - fflrfim miïi i r r^ - - U La uq h □ Households □ Industry BG UK SK CZ DK SE RO LU DE AT HU EU BE SI IT NL FI PL FR LT EE LV GR IE MT PT ES CY Source of data: Eurostat, Energy; calculations by IMAD. Selected Competition Indicators in Wholesale and Retail Sale Slovenian Economic Mirror IMAD No. 2/2007 p. 22 SCA Code Description of activity HHI2 No. of companies Share3 of the largest company, % Share3 of the three largest companies, % Share3 in activity G4, % 2000 2005 2000 2005 2000 2005 2000 2005 2005 51.35 Wholesale of tobacco products 9,300 6,369 2 4 96.4 77.8 100.0 100.0 0.3 52.26 Retail sale of tobacco products 9,894 6,158 5 5 99.5 74.2 100.0 99.9 0.4 50.50 Retail sale of automotive fuels 6,176 5,781 44 40 75.1 71.2 98.8 98.9 12.3 51.12 Agents involved in the sale of fuels, ores, metals and industrial chemicals 4,398 5,693 26 49 62.2 74.5 87.7 89.0 0.6 51.51 Wholesale of solid, liquid and gaseous fuels 4,223 4,031 36 53 62.8 59.5 82.9 85.9 2.5 51.54 Wholesale of hardware, plumbing and heating equipment 2,524 3,775 273 283 43.1 61.3 70.0 64.4 5.4 51.17 Agents involved in the sale of food, beverages and tobacco 5,363 3,326 48 57 72.1 53.8 88.4 81.8 0.1 52.44 Retail sale of furniture, lighting equipment and household articles 2,223 3,221 102 101 45.6 51.3 59.5 79.2 0.8 52.47 Retail sale of books, newspapers and stationery 3,213 3,061 97 101 49.9 41.9 80.1 82.8 0.8 52.33 Retail s. of cosmetic and toilet art. 2,279 2,577 20 32 40.4 45.8 72.5 68.6 0.2 51.52 Wholesale of metals and metal ores 760 2,570 36 47 10.9 38.7 32.1 76.7 1.0 52.11 Retail sale in non-specialised stores with food predominating 857 2,369 761 460 22.8 42.1 39.1 74.0 16.5 51.56 Wholesale of other intermed. prod. 3,468 2,008 26 38 53.0 36.9 88.5 66.9 0.4 51.21 Wh. of grain, seeds and animal feeds 2,225 1,988 22 26 41.0 34.7 69.1 71.6 0.5 51.36 Wholesale of sugar and chocolate 3,994 1,977 21 30 61.3 35.5 79.6 66.0 0.1 51.32 Wholesale of meat and meat prod. 2,310 1,942 27 25 34.6 34.8 80.4 67.2 0.1 51.44 Wholesale of china and glassware, wallpaper and cleaning materials 1,794 1,823 17 24 30.2 35.6 64.0 61.6 0.2 Selected branches of wholesale and retail sale Source of data: AJPES; calculations by IMAD. Notes: branches with the HHI value higher than 1,800 and net revenues in the domestic market as a share of net revenues of wholesale and retail trade higher than 0.04% ; 2Hirschmann-Herfindahl indexes are calculated by adding up the squared shares of all the companies in an industry, where industries are defined as the four-digit SCA code activities; 3shares of net companies' revenues in the domestic market (2000: sum of the AOP 051 and AOP 053; 2005: sum of the AOP 092 and AOP 094); 4wholesale and retail sale, the repair _of motor vehicles and consumer goods._ The article evaluates the progress regarding the increase in competition in the wholesale and retail trade sector by analysing changes in the number of companies in the branch and the values of the Hirschmann-Herfindahl Index (HHI). These indicators were used due to the unavailability of other indicators (degree of market regulation and openness, number and size of enterprises in an industry, market structure, prices) for which data are lacking. The HHI was calculated using the AJPES' data on company performance. Individual classes of economic activities (classified by the four-digit NACE code), hereinafter called activities, were defined as markets. Results indicate that competition in the Slovenian trade sector has increased. The number of highly concentrated activities fell between 2000 and 2005, which points to a shift towards stronger competition in the trade sector. In 2005, 28 activities out of the total 77 were highly concentrated (36.4%), 18 were moderately concentrated (1000