Slovenian economic mirror December, 2015, No. 12, Vol. XXI Slovenian Economic Mirror ISSN 1318-3826 No. 12 / Vol. XXI / 2015 Publisher: IMAD, Ljubljana, Gregorčičeva 27 Responsible Person: Boštjan Vasle, MSc, Director Editor in Chief: Jure Brložnik Authors of Current Economic Trends (listed alphabetically): Jure Brložnik, Janez Dodič, Marjan Hafner, MSc, Matevž Hribernik, Slavica Jurančič, Mojca Koprivnikar Šušteršič, Tanja Kosi Antolič, PhD, Janez Kušar, Jože Markič, PhD, Helena Mervic, Tina Nenadič, MSc, Mitja Perko, MSc, Jure Povšnar, Ana T. Selan, MSc, Dragica Šuc, MSc, Ana Vidrih, MSc. Authors of Selected Topics: Valerija Korošec, PhD (Human Development Index) Editorial Board: Marijana Bednaš, MSc, Aleš Delakorda, MSc, Lejla Fajič, Alenka Kajzer, PhD, Rotija Kmet Zupančič, MSc, Janez Kušar, Boštjan Vasle, MSc Translator: Marija Kavčič Data Preparation and Graphs: Bibijana Cirman Naglič, Marjeta Žigman Concept and Design: Katja Korinšek, Pristop DTP: Bibijana Cirman Naglič Print: Demat d.o.o. Circulation: 80 copies © The contents of this publication may be reproduced in whole or in part provided that the source is acknowledged. Contents In the spotlight................................................................................................................................................................3 Current economic trends..............................................................................................................................................5 International environment...............................................................................................................................................7 Economic developments in Slovenia.............................................................................................................................8 Labour market..................................................................................................................................................................11 Prices..................................................................................................................................................................................12 Balance of payments.......................................................................................................................................................14 Financial markets.............................................................................................................................................................15 Public finance....................................................................................................................................................................16 Boxes Box 1: Real estate market - Q3 2015............................................................................................................................10 Selected topics Human Development Index..........................................................................................................................................21 Statistical appendix.....................................................................................................................................................23 The Economic Mirror is prepared based on statistical data available by 7th January 2016. On 1 January 2008, the new classification of activities of business entities NACE Rev. 2, which replaced NACE Rev. 1.1, came into force in all EU Member States. In the Republic of Slovenia the national version of the standard classification, SKD 2008, took effect. It includes the entire European classification of activities but also adds some national subclasses. All analyses in the Slovenian Economic Mirror are based on SKD 2008, except when the previous classification, SKD 2002, is explicitly referred to. For more information on the introduction of the new classification see the SURS website http://www.stat.si/eng/skd_nace_2008.asp. All current comparisons (at the monthly, quarterly levels) in the Slovenian Economic Mirror are made on the basis of seasonally adjusted data, while year-on-year comparisons are based on original data. Unless otherwise indicated, all seasonally adjusted data for Slovenia are calculations by IMAD. Slovenian Economic Mirror, December 2015 3 In the Spotlight In the spotlight Indicators of economic activity and confidence in the euro area indicate a continuation of GDP growth in the last quarter of 2015. At the transition to the last quarter, production volume in manufacturing and construction output remained almost the same as in previous months. Turnover growth in retail trade came to a halt in the last few months, but in the first ten months of 2015 as a whole, this indicator was up the most of all three indicators relative to the same period of 2014. This is attributable to the strengthening of private consumption amid rising disposable income owing to the recovery of the labour market and a positive impact of lower oil prices. A further improvement in confidence indicators at the end of the year suggests a continuation of favourable trends. At the beginning of the last quarter of 2015, short-term indicators of economic activity in Slovenia maintained the levels achieved in previous months, except for construction. Merchandise exports and production volume in manufacturing maintained their levels after a longer period of growth; in the first ten months of 2015, they were up year-on-year. Exports thus remain the main driver of the economic recovery. Total turnover in retail trade has also been more or less unchanged in recent months, further growth being recorded in the sale of non-food products, which, alongside growth in the sale of motor vehicles, suggests a further recovery of private consumption in the segment of durable goods. Meanwhile, activity declined further in construction, the only sector to lag behind the levels in the same period of 2014. Confidence in the economy remained high in the last three months. The labour market continued to recover in the last months of 2015; growth in average gross earnings was marked by wage movements in the private sector. The further growth of employment was mainly due to the pick-up in manufacturing. Having increased in most private sector activities, employment growth in the first ten months of 2015 was significantly stronger than in the same period of 2014. After falling for a prolonged period, registered unemployment rose in December (seasonally adjusted), 113,076 people being registered as unemployed at the end of the month, six thousand fewer than one year earlier. Average gross earnings in the private sector stopped growing, which is attributable to the rising share of low-wage earners, companies' efforts to maintain competitiveness and the absence of price pressures. At the end of 2015, Slovenia experienced deflation for the first time ever (-0.5%), largely owing to lower energy prices. With further oil price declines on global markets, the negative contribution of liquid fuel prices was even more pronounced than in the preceding year. Prices of durable goods also remained lower. Prices of semi-durable goods, food (unprocessed food in particular) and services were up. The deleveraging of non-banking sectors at domestic banks increased in the first eleven months of 2015. This was mainly a consequence of a larger decline in corporate and NFI loans (excluding the transfers of claims to the BAMC) than in the same period of 2014. The volume of government loans contracted too, while household loans expanded owing to rising housing loans amid the recovery of the property market (see Box 1). As regards the sources of finance, in the first ten months of 2015, banks repaid a quarter more liabilities net than one year before, while the increase in deposits by domestic non-banking sectors more than halved in the first eleven months. The general government deficit totalled EUR 785m in the first ten months of 2015 and it will increase slightly by the end of the year. In comparison with the same period of 2014, the deficit was down EUR 364 m, reflecting improvements in economic activity and labour market conditions, and government measures for increasing revenue and stemming expenditure. The main drivers of year-on-year revenue growth in the first ten months of 2015 were tax revenues, which increased across all main categories, and growth in social contributions. Expenditure was slightly lower than a year before because of lower expenditures on investment, interest payments and subsidies. We expect stronger investment expenditure dynamics at the end of the year, and hence a wider deficit in the year as a whole than in the first ten months. current economic trends 7 Slovenian Economic Mirror, November 2015 Current Economic Trends International environment Figure 2: 10-year government bond yields Short-term indicators of economic activity and confidence in the euro area indicate a continuation of modest GDP growth in the last quarter of 2015. Production volume in manufacturing and construction output remained almost the same as in previous months. In the last few months, the growth of turnover in retail trade came to a halt, but in the first ten months of 2015 as a whole, this indicator was up the most of all three indicators relative to the same period of 2014. Meanwhile, labour market conditions continue to improve. Employment rose further in the third quarter (0.3%), while the unemployment rate declined. The Economic Sentiment Indicator (ESI) improved slightly again in October and November, and the Purchasing Managers Index (PMI) for manufacturing reached the highest value in 2015 in December. Figure 1: Unemployment rates in the euro area ■ 2015 Q3 A 2013 Q3 «2008 Q3 I. I 15 ▲ A A 4 Source: Eurostat. In December, the ECB lowered the interest rate on the deposit facility and extended the implementation of the expanded asset purchase programme, while the Fed raised its key interest rate for the first time since 2006. The ECB decreased the interest rate on the deposit facility by 10 basis points (to -0.30 %) and extended the programme of government and corporate bond purchases by six months, i.e., to the end of March 2017. Meanwhile, the Fed raised its key interest rate by 0.25 percentage points, to a target range of 0.25% to 0.5%, the main reasons being a further improvement in labour market conditions, better economic prospects and an expected increase in inflation. Reflecting this macroeconomic environment, the 10-year government bonds of most euro area countries continued to decline. WL i Source: Bloomberg; calculations by IMAD. In 2015, dollar prices of Brent crude oil fell further and hit a ten-year low. After a sharp drop in the previous two months, Brent crude prices dipped below USD 40 per barrel in December. According to the IEA, the decline was mainly due to OPEC's decision to keep its output level unchanged despite the surplus supply on the oil market. In 2015, the average dollar price for Brent crude thus fell by 47.1% to EUR 52.4, the lowest level since 2004 and the largest annual decline in 25 years. Despite a significant depreciation of the euro against the US dollar, oil prices in euros dropped by 35.2% to EUR 48.3 a barrel. The latest IMF data indicate that dollar prices of non-energy commodities also fell, but their decline was much smaller. Figure 3: Prices of Brent crude oil and the USD/EUR exchange rate -Price in EUR (left axis) -Price in USD (left axis) -USD to EUR exchange rate (right axis) 120 o 60 1.45 1.40 1.35 1.30 1.25 I 1.20 1.15 1.10 1.05 Source: ECB, EIA; calculations by IMAD. 18 16 14 10 8 6 4 2 0 30 25 20 10 5 0 110 90 £ 80 70 50 40 30 1.00 8 Slovenian Economic Mirror, November 2015 Current Economic Trends Table 1: Indicators related to the international environment average change, in %* 2014 XI 15 XII 15 2015 XII 15/XI 15 XII 15/XII 14 I-XII 15/I-XII 14 Brent USD, per barrel 98.93 44.27 38.12 52.36 -13.9 -38.8 -46.5 Brent EUR, per barrel 74.58 41.22 35.06 47.21 -14.9 -30.7 -35.7 EUR/USD 1.329 1.074 1.088 1.110 1.3 -11.8 -16.5 3-month EURIBOR, in % 0.209 -0.088 -0.126 -0.020 -3.8 -20.7 -22.9 Source: EIA, ECB Euribor; calculations by IMAD. Note: * In Euribor, change in basis points. Economic developments in Slovenia At the beginning of the last quarter of 2015, short-term indicators of economic activity in Slovenia maintained the levels achieved in previous months, except for construction. Merchandise exports and production volume in manufacturing maintained their levels after Figure 4: Short-term indicators of economic activity in Slovenia -Merchandise exports -Industrial production in manufacturing ----Construction output ----Turnover in retail trade Source: SURS; calculations by IMAD. Table 2: Selected monthly indicators of economic activity in Slovenia in % 2014 X 15/ IX 15 X 15/ X 14 I-X 15/ I-X 14 Merchandise exports, real1 6.6 -1.23 1.0 4.0 Merchandise imports, real1 3.6 0.13 1.1 3.0 Services exports, nominal2 4.5 -0.43 5.4 7.2 Services imports, nominal2 7.5 -2.03 -9.8 -0.4 Industrial production, real 2.2 -0.33 3.24 4.84 -manufacturing 4.3 -0.53 3.74 5.34 Construction -value of construction put in place, real 19.5 -0.33 -11.8 -8.7 Real turnover in retail trade 0.0 -1.23 0.54 0.74 Nominal turnover in market services (without trade) 2.7 -0.33 3.34 3.14 Sources: BoS, Eurostat, SURS; calculations by IMAD. Notes: 'External trade statistics; deflated by IMAD, 2balance of payments statistics, Seasonally adjusted, 4working-day adjusted data. a long period of growth; in the first ten months of 2015, they were up year-on-year. Exports thus remain the main driver of the economic recovery. Total turnover in retail trade has also been more or less unchanged in recent months, further growth being recorded in the sale of non-food products, which, alongside growth in the sale of motor vehicles, suggests a further recovery of private consumption in the segment of durable goods. Meanwhile, activity declined further in construction, the only sector to lag behind the levels in the same period of 2014. Confidence in the economy remained high in the last three months of the year. Growth in real merchandise imports and exports came to a halt in the last few months, but both were up year-on-year in the ten months to October (by 4.0% and 3.0%, respectively).' Merchandise exports to the EU have maintained similar levels since the end of 2014, while exports to outside the EU have declined again in recent months. The prospects nevertheless remain relatively favourable, the indicator of expected exports in manufacturing indicating growth in the months ahead. Figure 5: Merchandise trade - real -Merchandise exports -Merchandise imports Source: SURS; calculatons by IMAD. 1 The estimate of real merchandise exports is based on nominal exports according to the external trade statistics and industrial producer prices on the foreign market, while real merchandise imports have been estimated on the basis of nominal imports according to the external trade statistics and the index of import prices. 9 Slovenian Economic Mirror, November 2015 Current Economic Trends In the first ten months of 2015, exports were up year-on-year across all categories of manufacturing industries according to technology intensity. Their total growth was mainly driven by exports of vehicles, despite the slowdown since the middle of the year. Imports have declined slightly in recent months, but were up year-on-year in the first ten months in all end-product groups. The highest growth was recorded by investment goods. At the transition to the final quarter of 2015, nominal exports of services continued to grow, while imports dropped further.2 Exports of services were up 7.2% year-on-year in the ten months to October. More than half of export growth was accounted for by travel services; visible contributions to growth were also made by transport and technical, trade-related services. Imports were down slightly year-on-year in the same period (-0.4%). The decline was chiefly due to lower imports of construction services, while imports of telecommunication services and charges for the use of intellectual property were higher than in the same period of 2014. Figure 6: Services trade - real -Exports of services -Imports of services rNrNmm^r^ri^ii^) Source: BoS; calculators by IMAD. Manufacturing production maintained its high level in October (seasonally adjusted); in the ten months to October, it was up year-on-year in all groups of manufacturing industries according to technology intensity. In all three groups, October's activity was similar to that in the third quarter, when it rose further. In the first ten months of 2015, production volume was up year-on-year in all medium-low-technology industries, particularly the metal industry, and in most industries of higher technology intensity except the chemical industry. In the period between mid-year and October, growth remained strongest in the manufacture of transport equipment, despite the moderation, while production growth in ICT and electrical equipment manufacturing dropped by half relative to the same period of 2014. Growth remained weakest in low-technology manufacturing, the main reason being a further decline in the textile sector. For the second year in a row, activity rose most notably in leather production, the most export-oriented low-technology industry. Figure 7: Production volume in manufacturing according to technology intensity » Low-technology industries Medium-low-technology industries ----Medium-high- and high-technology industries -Manufacturing, total Source: SURS; calculations by IMAD. The value of construction put in place, the stock of contracts and the value of new contracts fell in the last few months (seasonally adjusted). The decline in construction put in place was primarily due to the lower activity in civil-engineering works. Activity also dropped in the construction of non-residential buildings; activity in residential buildings rose in the same period, but remained close to the lowest levels in the past few years. With a further decline in the stock of contracts and the value of new contracts in all three construction segments, growth prospects remain poor. Figure 8: Value of construction put in place -Total ----Residential buildings -Non-residential buildings ----Civil-engineering works „, 70 cn CN m m LH LH 2 According to the balance of payments statistics. 1=1=1=1=1 = Source: SURS; calculations by IMAD. 60 50 40 30 20 10 0 10 Slovenian Economic Mirror, December 2015 Current Economic Trends Box 1: Real estate market - Q3 2015 In the third quarter of 2015, the number of residential property transactions increased further and was 28% higher than in the same period a year before. Underpinned by higher sales of family houses, the number of transactions in existing dwellings1 was the highest in seven years. The sales of new dwellings increased as well. After increasing in the first half of the year, dwelling prices declined in the third quarter, but remained up year-on-year. Prices of existing flats were higher than a year earlier (5.4%) primarily on account of higher prices in Ljubljana. Prices of new flats were also up (5.2%) on the same period of 2014. Prices of family houses (both new and existing ones), having dropped significantly again, reached an all-time low. Figure 9:Transactions in new and existing dwellings - Transactions in existing flats - Transactions in new flats Transactions in existing houses ■ Transactions in new houses Figure 10: Prices of new and existing dwellings -Prices of existing flats -Prices of new flats ----Prices of existing houses ----Prices of new houses ° 90 a a a Source: SURS; calculations by IMAD. O O O O Source: SURS; calculations by IMAD. 'The majority of transactions (90%) were in existing dwellings, of which, 70% were in existing flats. 95 85 80 80 75 - 60 70 40 65 Figure 11: Turnover in trade subsectors -Retail trade, real ----Motor vehicles and repair, real Source: SURS; calculations by IMAD. The strong activity in the sale of motor vehicles continued at the beginning of the final quarter of 2015, while activity in retail trade remained roughly unchanged and activity in wholesale trade declined. In the ten months to October, real turnover in the sale and repair of motor vehicles increased more than a tenth year-on-year amid growing sales to both natural and legal persons.3 Real turnover in retail trade was also slightly higher, reflecting further growth in the sales of non-food products and a decline in the sales of food. Nominal turnover in wholesale trade was also up slightly year-on-year in the first ten months of the year, despite the decline in the last few months. After a long period of increase, nominal turnover in market services4 maintained its high level at the beginning of the final quarter of 2015. Turnover in transport services has 3 The number of new car registrations was a tenth higher year-on-year. Within that, registrations of new cars used by natural persons increased by 13.8% (of which, the sales via leasing by a fifth) and the number of new cars used by legal entities rose by 6.8%. 4 Activities from H to N (SKD 2008) subject to the Council Regulation (EC) No. 1165/98 concerning short-term statistics. 11 Slovenian Economic Mirror, December 2015 Current Economic Trends decreased slightly in recent months. Turnover growth also came to a halt in legal and accounting, management consultancy, and architectural and engineering activities. Turnover in accommodation and food service activities has stagnated for several months, at a high level that is a consequence of strong growth in 2014 and early 2015. Turnover growth in computer programming, consultancy, and telecommunication services has slowed slightly. In employment services (employment placement agencies) turnover growth remained high. Figure 12: Nominal turnover in market services (other than trade) Total - Transport and storage (H) Communication activities (J) ■ Professional-technical activities (M) - Administration and support service activities (N) - Accommodation and food service activities (I) 95 90 / < \ y i i i i \ .........I I..........j>™ rN rN m m Source: SURS; calculations by IMAD. Economic sentiment has remained high since September, in all sectors except construction. In December, consumer confidence improved slightly, while confidence in the economy remained similar to the previous month, deteriorating only for retail trade. Figure 13: Business trends -Economic sentiment ----Retail trade • Construction - Manufacturing - Service activ. ---Consumers m m LO LO Source: SURS; calculations by IMAD. Labour market The number of employed persons5 continued to increase in October (0.1%, seasonally adjusted). Its growth in the last months was mainly due to stronger growth in manufacturing. In the first ten months of 2015, the total number of employed persons was up year-on-year in most private sector activities, notably manufacturing, accommodation and food service activities, transportation, and distributive trades. In employment services, growth remained high, but it made a smaller Figure 14: Employed according to SRE and registered unemployed -Employed according to SRE (left axis) -Registered unemployed (right axis) Source: SURS, ESS; calculations by IMAD. Table 3: Indicators of labour market trends in % 2014 X 15/ IX 15 X 15/ X 14 I-X 15/ I-X 14 Persons in formal employment2 0.5 0.0 0.5 0.9 Registered unemployed 0.2 -0.8 -7.3 -6.2 Average nominal gross wage 1.1 -0.11 -0.2 0.4 - private sector 1.4 -0.11 -0.1 0.2 - public sector 0.9 -0.11 -0.2 0.9 -of which general government 0.6 0.11 0.5 0.6 2014 X 14 IX 15 X 15 Rate of registered unemployment (in %), seasonally adjusted 13.1 12.8 12.1 12.0 Average nominal gross wage (in EUR) 1,540.25 1,543.66 1,522.07 1,540.58 Private sector (in EUR) 1,424.32 1,422.81 1,401.47 1,421.29 Public sector (in EUR) 1,757.29 1,773.27 1,753.08 1,770.40 -of which general government (in EUR) 1,726.43 1,728.87 1,733.46 1,736.76 Sources: ESS. SURS; calculations by IMAD. Note: Seasonally adjusted, 2 Persons in paid employment, self-employed persons and farmers. 5 According to the Statistical Register of Employment; these are persons in paid employment and self-employed persons except farmers. Ï 115 85 80 75 12 Slovenian Economic Mirror, December 2015 Current Economic Trends Table 4: Employed persons by activity Number in '000 Change in number 2014 X 15 IX 15 X 14 X 15/X 14 I-X 15/I-X 14 Manufacturing 178.3 183.6 182.5 179.4 4,138 2,257 Construction 54.0 56.1 56.0 55.9 214 435 Market services 339.0 350.7 349.6 344.1 6,603 8,844 -of which: Employment activities 10.6 15.0 14.9 12.8 2,180 4,056 Public services 171.0 173.1 172.7 171.6 1,487 983 Public administration and defence, compulsory social security 48.8 47.9 48.2 48.7 -854 -756 Education 66.0 67.3 66.9 66.3 1,032 632 Human health and social work activities 56.2 57.9 57.6 56.6 1,309 1,108 Other1 55.5 46.9 49.3 55.4 -8,460 -5,134 Total 797.8 810.4 810.1 806.4 3,982 7,385 Source: SURS; calculations by IMAD. Note: Agriculture and hunting, forestry, fishing; mining; electricity, gas and steam supply; water supply, sewerage, waste-management and remediation activities contribution to total growth than in 2014. Public sector activities recorded further growth in health and social work, while the number of persons employed in public administration remained down year-on-year. Registered unemployment rose at the end of 2015 (0.7%, seasonally adjusted), after a prolonged period of decline. Having been falling since April 2014, the number of registered unemployed rose in December primarily owing to a smaller outflow into employment. The inflow into registered unemployment was also somewhat stronger, the main reason being the termination of fixed-term contracts. The number of registered unemployed nevertheless remained 5.3% lower year-on-year at the end of December, at 113,076. In 2015, fewer persons registered anew than in 2014, mainly as fewer lost work because of their company's bankruptcy or for business reasons. There were also fewer first-time jobseekers. The total outflow from unemployment was also slightly Figure 15: Registered unemployment flows 108,000 smaller, mainly owing to a slightly smaller outflow into employment (also as fewer people were included in public works). After stagnating in the third quarter, average gross earnings declined slightly in October, seasonally adjusted. In the private sector, they were up 0.2% year-on-year in the first ten months of 2015. Their weak growth is explained by changes in employment structure (on account of a rising number of low-wage earners), companies' efforts to maintain competitiveness and the absence of price pressures. Owing to the payments of suspended promotion raises in 2014 and further growth in public corporations, the year-on-year growth of public sector earnings totalled 0.9% in the first ten months, which is similar to the same period of 2014. Figure 16: Average gross earnings per employee 2.0 ^^rn 2014 ^^m 2015 -Average gross earnings 2014 ---Average gross earnings 2015 Private sector Public sector - of which, gen. - of which, government public sector corporations Source: SURS; calculations by IMAD. Inflow Outflow Source: SURS; calculations by IMAD. 1.5 1.0 "m 0.5 0.0 13 Slovenian Economic Mirror, December 2015 Current Economic Trends Prices Slovenia experienced deflation at the end of 2015 for the first time ever (-0.5%), the main reason being lower prices of energy. The negative contribution of the year-on-year decline in liquid fuel prices (-0.9 percentage points) was even more pronounced than in 2014. Deflation was also underpinned by lower prices of durable goods (furniture, passenger cars), but their decline (-0.1 percentage points) in comparison with 2014 eased. Higher than a year earlier were prices of semi-durables (0.1 percentage points), food, unprocessed food in particular (0.2 percentage points), and services (0.2 percentage points). Figure 17: Breakdown of year-on-year inflation Other ^^m Services ^^m Fuels and energy ^^B Food -CPI (right axis) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 m m 3.5 3.0 2.5 2.0 ï 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 Source: SURS; calculations by IMAD. November saw further year-on-year declines in import prices and industrial producer prices on the domestic and foreign markets. The continuation of the decline is linked to the falling commodity prices on global markets. The year-on-year drop in import prices (-1.7%) was also Table 5: Consumer price growth, in % 2014 XI 15/X 15 XI 15/XI 14 Total 0.2 0.1 -0.5 Food -1.0 0.0 0.2 Fuels and energy -4.1 -0.1 -1.1 Services 2.8 0.0 0.6 Other1 0.2 0.2 -0.2 Total excluding food and energy 1.3 0.3 0.7 Core inflation - trimmean2 0.0 0.3 0.8 Administered prices -2.6 -1.0 -11.8 Tax impact - contribution in percentage points. 0.4 0.0 0.1 Source: SURS, Ministry of Economic Development and Technology; calculations by IMAD.Notes: 1 Clothing, footwear, furniture, passenger cars, alcoholic beverages, tobacco, etc.; 2The trimmean approach excludes the share of extreme price changes in each month. The optimum share is determined as a difference between the moving average and the calculated trimmed mean in the period of the last five years. impacted by the falling prices of imported mining and quarrying products and prices in the metal and chemical industries. Prices in the manufacture of motor vehicles and ICT and electrical equipment remained higher. The year-on-year decline in industrial producer prices on the domestic market deepened further (-1.3%), for the most part owing to more pronounced price declines in the metal and food-processing industries. Similar price dynamics were also recorded for foreign markets (-1.2 %). Figure 18: Industrial producer prices and import prices -PPI (domestic market) ----PPI (foreign market) -Import prices 12 8 6 m m LH LH Source: SURS. Slovenia's price competitiveness gains in the first ten months were among the relatively smallest in the euro area. This was a consequence of a smaller decline in the nominal effective exchange rate due to the geographical structure Figure 19: Real effective exchange rate (HICP deflator) -REER HICP ----NEER - Relative HICP 3 2 1 0 * -1 C Ü) S -3 h -5 CN CN fO fO Source: SURS; calculations by IMAD. 10 4 2 0 -4 -6 14 Slovenian Economic Mirror, November 2015 Current Economic Trends of Slovenia's external trade.6 In contrast, the year-on-year decline in relative prices7 has been deepening in recent months and is among the largest in the euro area. current transfers of the government and the private sector. In the twelve months to October, the current account surplus totalled 7.5% of estimated GDP. Balance of payments The current account surplus In the first ten months of 2015 was up EUR 296 m year-on-year owing to a larger surplus In International trade In goods and services. The year-on-year increase in the merchandise trade surplus during this period was mainly a consequence of faster growth in exports to EU markets and a decline in imports from outside the EU (also owing to lower commodity prices). In services trade, the surpluses in trade in travel and transport services increased in particular. On the other hand, the net outflow of primary and secondary income was up year-on-year. The larger deficit in primary income was primarily due to the net outflow of direct investment income8 and lower subsidies from the EU budget. The year-on-year widening of the deficit in secondary income was chiefly the result of a larger net outflow of various Figure 20: Components of the current account of the balance of payments I Secondary income I Services trade ■Current account balance ■ Primary income ■ Merchandise trade I-X 2011 I-X 2012 I-X 2013 I-X 2014 Source: BS; calculations by IMAD. 6 As Slovenia has an above-average share of trade with the euro area, it is relatively less susceptible to the volatility of the euro. Apart from that, this year, the euro has mainly been losing value against the currencies of those trading partners that account for relatively smaller shares of Slovenia's trade outside the euro area (US, UK, Asian countries), while being stable against the currencies of those with relatively larger shares (Croatia, Hungary, the Czech Republic, Poland). 7 Slovenian prices in comparison with those in the trading partners. 8 On the current account of the balance of payments, the coverage of losses is recorded as negative reinvested earnings of direct investors. In outward direct investment, negative reinvested earnings constitute negative receipts of direct investment income; in inward direct foreign investment, they represent negative expenditure of direct investment income. In the first ten months of 2015, the net outflow of international financial transactions (EUR 2.5 bn) was up on the same period of 2014 (EUR 1.8 bn). The greatest Figure 21: Financial transactions of the balance of payments ■ Other Investment «Financial derivatives ■ Portfolio investment ■ Direct investment -Net financial flow 8,000 6,000 -4,000 ■ I-X 2011 I-X 2012 I-X 2013 I-X 2014 I-X 2015 Source: BS; calculations by IMAD. Table 6: Balance of payments I-X 15, in EUR m Inflows Outflows Balance Balance I-X 14 Current account 26,890.3 24,371.3 2,519.0 2,222.9 Goods 20,030.7 18,599.3 1,431.4 1,069.0 Services 4,967.4 3,148.9 1,818.4 1,471.7 Primary income 1,210.4 1,556.6 -346.2 -45.7 Secondary income 681.8 1,066.4 -384.7 -272.1 Capital account 483.5 412.4 71.1 -5.3 Gross acquisitions/disposals of non-produced non-financial assets 119.6 117.0 2.6 8.2 Capital transfers 364.0 295.5 68.5 -13.5 Financial account -634.2 1,885.3 2,519.4 1,886.0 Direct investment 951.1 271.3 -679.8 -755.6 Portfolio investment -422.9 1,418.6 1,841.6 -3,812.4 Financial derivatives -61.1 -42.0 19.1 -0.2 Other investment -1,101.2 261.9 1,363.1 6,376.7 Assets 0.0 261.9 261.9 3,804.8 Liabilities -1,101.2 0.0 -1,101.2 -2,571.9 Reserve assets 0.0 -24.6 -24.6 77.5 Net errors and omissions 0.0 -70.7 -70.7 -331.5 Source: BoS. Note: The methodology of the Slovenian Balance of Payments and International Investment Position statistics follows the recommendations in the sixth edition of the Balance of Payments and International Investment Position Manual published by the International Monetary Fund 0 I-X 2015 Slovenian Economic Mirror, November 2015 Current Economic Trends 15 difference occurred in portfolio investment, which posted a net outflow in 2015, compared with a net inflow in the same period of 2014. Government borrowing was considerably lower than in 2014, while investment by investment and other funds in foreign securities increased significantly. The net outflow of other investment was down year-on-year, mainly owing to the central bank and other banks withdrawing currency and deposits from foreign accounts. Commercial banks continued to make debt repayments abroad. Direct investment recorded a net inflow largely owing to the inflow of equity capital, which was primarily due to the debt-to-equity swap. Financial markets In the first eleven months of 2015, the volume of domestic non-banking sectors' loans decreased more than in the same period of 2014 primarily owing to the stronger deleveraging by enterprises and NFIs.9 Total loan volume contracted by EUR 1.2 bn, almost a tenth more than in the same period of 2014, which was a consequence of stronger corporate and NFI deleveraging and a decline in government debt to domestic banks. Meanwhile, household loans rose by around EUR 95 m, on account of a larger volume of housing loans and a smaller decline in consumer loans and loans for other purposes. Corporate and NFI loans fell by EUR 1.2 bn in the first eleven months of 2015, which is almost 15% more than in the same 9 In loan movements in the first eleven months of 2015, the change in volume as at 30 November 2015 relative to 31 December 2014 is shown. In the year-on-year comparison we excluded the impact of the transfers of claims to the BAMC in September and October 2014 (EUR 1.3 bn in total). Figure 22: Changes in the volume of domestic bank loans to households, enterprises and NFIs, and the government ■ Households ■ Enterprises and NFIs «Government ♦Total 1,000 E -500 -1,000 -1,500 -2,000 -2,500 I-XI 2011 I-XI 2012 I-XI 2013 I-XI 2014 Source: BoS; calculationy by IMAD. I-XI 2015 period of 2014. In the last two months, loans for other purposes otherwise rose more notably, but repayments of loans for business purposes and commercial real estate remained relatively significant. Enterprises and NFIs continued to make net repayments abroad, but to a lesser extent than in 2014.10 They were net repaying long-term loans, while their net short-term borrowing 10 In the first ten months of 2015, the net volume of foreign loans declined by EUR 450 m, approximately a third less than in the first ten months of 2014. Table 7: Financial market indicators 0 Domestic bank loans to non-banking sector and household savings Nominal amounts, EUR bn Nominal loan growth, % 31. XII 14 30. XI 15 30. XI 15/31. X 15 30. XI 15/31. XII 14 30. XI 15/30. XI 14 Loans total 22,883.1 21,658.6 -0.8 -5.4 -8.8 Enterprises and NFI 12,300.4 11,076.3 -1.2 -10.0 -16.2 Government 1,820.3 1,725.5 -1.1 -5.2 -0.2 Households 8,762.5 8,893.9 -0.2 1.1 0.7 Consumer credits 2,104.1 2,046.8 -0.6 -2.7 -3.8 Lending for house purchase 5,348.0 5,503.4 0.2 2.9 3.0 Other lending 1,310.5 1,306.6 -1.0 -0.3 -0.9 Bank deposits total 15,355.6 15,741.9 0.0 2.5 3.4 Overnight deposits 7,373.6 8,796.3 0.9 19.3 22.0 Short-term deposits 3,272.5 2,586.7 -1.8 -21.0 -22.1 Long-term deposits 4,704.9 4,348.2 -0.7 -7.6 -7.3 Deposits redeemable at notice 4.6 10.7 1.0 133.3 93.3 Mutual funds 2,150.7 2,415.2 2.3 12.3 10.6 Government bank deposits, total 1,909.4 2,431.5 -0.6 27.3 -6.8 Overnight deposits 24.6 782.2 3.2 3,080.4 67.3 Short-term deposits 860.6 206.6 -13.7 -76.0 -80.9 Long-term deposits 955.2 1,253.5 -0.1 31.2 28.9 Deposits redeemable at notice 69.0 189.2 -2.9 174.1 124.9 Sources: Monthly Bulletin of the BoS, SMA (Securities Market Agency); calculations by IMAD. Note: NFI - Non-monetary Financial Institutions. Slovenian Economic Mirror, November 2015 16 Current Economic Trends totalled around EUR 120 m. After widening slightly in the previous two months, the gaps between domestic and foreign interest rates11 narrowed again in October, but still exceeded 100 basis points. The quality of banks' assets continues to improve gradually. At the end of October, the volume of non-performing loans stood at EUR 3.8 bn (10.0%), down EUR 0.6 bn over the end of 2014. Looking at the sources of finance, banks continue to repay their liabilities abroad, while the increase in deposits by domestic non-banking sectors is slowing. Banks repaid EUR 1.4 bn net in foreign liabilities in the first ten months of 2015, which is about a quarter more than in the comparable period of 2014. The bulk of the amount (around 80%) was a consequence of net repayments of deposits and loans. Deleveraging otherwise slowed considerably in the second half of the year. The increase in deposits by domestic non-banking sectors in the first eleven months of 2015 was more than half smaller12 than in the same period of 2014, at EUR 1.2 bn. It was mainly due to deposits by the central government (approximately EUR 540 m), although significant contributions also came from households and non-financial corporations (around EUR 380 m from each), while deposits by the NFIs declined. Overnight deposits increase rapidly, as a result of the low deposit interest rates, while other deposits decline. linked to the one-off or other extraordinary revenues from 2014, such as the payment of concession fees for mobile telephony. Receipts from the EU budget were also slightly lower than in the same period of 2014. Figure 23: Revenue growth and contributions individual categories to growth Tax revenues ■ Social security contributions ■ Non-tax revenues ■ Receipts from the EU budget ■ Capital and transferred revenues and donations received ♦ TOTAL REVENUE (right axis) _ of I-X I-X Q1 Q2 Q3 X 2014 2015 2015 Source: MF, Bulletin of Government Finance; calculations by IMAD. Public finance The year-on-year growth of general government revenue strengthened in October and totalled 2.3% at the end of the first ten months of 2015. The strong year-on-year growth of (tax) revenues in October was due to the fact that some large taxable persons delayed the payments of excise duties and value added tax (VAT) from September to October. In the first ten months, total revenue growth mainly stemmed from tax revenues. Revenues from all major tax categories were up, particularly from: (i) the corporate income tax, which increased mainly as a result of the positive annual tax assessments following the improvement in business performance in 2014; (ii) the value added tax, which reflected growth in private consumption and measures for more efficient tax collection; and (iii) the personal income tax, which rose largely as a consequence of higher employment. The higher inflow of (municipal) taxes on immovable property is related to the postponement of their collection from 2014 to 2015, while the increase in revenues from some other taxes (the taxes on financial and insurance services and CO2 emissions) reflects increases in tax rates. Another significant factor in revenue growth was growth in social contributions, arising from the improvement in the labour market situation and the broadening of the contribution base. The year-on-year decline in non-tax revenues is 11 Interest rates for loans over EUR 1 m with a variable, or up to one year with a fixed initial interest rate. 12 This significant decline was mainly due to the smaller inflows of deposits by the central government and, to a lesser extent, households. General government expenditure in the first ten months of 2015 was slightly lower year-on-year (-0.5%). Expenditures on investment, interest payments and subsidies were down, while expenditure on special funds was much higher. Investment expenditure was more than 4% lower year-on-year after recording strong growth in 2014. Despite the increase in public debt, interest payments declined as a result of the new borrowing at a rate lower than that on the matured portion of debt. The payments of subsidies and transfers to non-profit Figure 24: Expenditure growth and contributions of individual categories to growth ■ Salaries, wages, oth. person. exp.* ■ Expend. on goods and servic. ■ Interest payments «Reserves ■ Current transfers Capital expendit. , capital transfers ■ Payments to the EU budget • TOTAL EXPENDITURE (right axis) 6 I-X I-X Q1 Q2 Q3 X 2014 2015 2015 Source: MF, Bulletin of Government Finance; calculations by IMAD. Note: * Labour costs include social contributions paid by the employer. 10 8 6 4 2 0 4 2 0 17 Slovenian Economic Mirror, November 2015 Current Economic Trends Table 8: Consolidated general government revenue and expenditure I - X2014 I - X 2015 I - X 2014 I - X2015 Category EUR m Y-o-y growth, in % EUR m Y-o-y growth, in % Category EUR m Y-o-y growth, in % EUR m Y-o-y growth, in % REVENUES TOTAL 12,607.9 5.7 12,900.2 2.3 EXPENDITURE TOTAL 13,757.2 3.2 13,685.3 -0.5 Tax revenues* 6,513.7 5.8 6,837.7 5.0 Salaries, wages and other pers. expen. 3,005.8 0.1 3,005.4 0.0 Personal income tax 1,555.4 2.5 1,604.7 3.2 Expenditure on goods and services 1,797.1 -1.5 1,781.8 -0.8 Corporate income tax 387.2 96.9 490.8 26.7 Interest payments 1,009.3 33.0 965.1 -4.4 Taxes on immovable property 126.4 -22.0 153.8 21.7 Reserves 71.7 -32.4 138.1 92.7 Value added tax 2,614.9 5.5 2,690.6 2.9 Transf to individuals and households 5,296.2 -0.2 5,322.1 0.5 Excise duties 1,228.5 -0.5 1,258.1 2.4 Other current transfers 1,019.5 -5.3 959.6 -5.9 Social security contributions 4,345.4 2.7 4,504.1 3.7 Investment expenditure 1,218.1 39.1 1,164.0 -4.4 Non-tax revenues 1,007.9 23.7 790.2 -21.6 Payments to the EU budget 339.5 -10.4 349.2 2.9 Receipts from the EU budget 680.7 13.5 675.6 -0.8 BUDGET BALANCE -1,149.2 -785.1 Other 60.2 -51.4 92.6 53.8 PRIMARY BALANCE -177.0 165.1 Source: MF. Bulletin of Government Finance; calculations by IMAD. Note: * Unlike tax revenues in the consolidated balance of public finance, tax revenues in this table do not include social constributions. ** Labour costs include social contributions by the employer. organisations declined, too, and expenditure on goods and services was also slightly lower. The largest increases relative to the same period of 2014 were posted for expenditure on special funds (the water protection fund and the climate change fund), which are recorded under reserves. Transfers to households were also higher, which is attributable to the higher annual pension supplement and other social security transfers; transfers to the unemployed were down due to lower unemployment. The wage bill13 and pensions (excluding the annual supplement14) remained similar year-on-year. The general government deficit15 totalled EUR 785 m In the first ten months of 2015 and It will Increase slightly by the end of the year. In comparison with the same period of 2014, the deficit was down EUR 364 m. The primary balance16 was also more favourable, positive at EUR 165 m. The year-on-year deficit decline was attributable to the improved economic activity and labour market conditions, alongside the measures taken by the government to increase revenue and stem expenditure.17 Among other expenditures, the government also curbed spending on investment, where we expect stronger 13 In 2015, the payments for eliminating part of the third quarter of disparities in public servants' earnings were lower than in 2014. These payments excluded, the wage bill was up year-on-year -including owing to the release of frozen promotion rises in 2014. 14 The annual pension supplement, which was recorded under pensions in 2014, was included among social transfers in 2015. For data comparability, we have excluded it from data on pensions for 2014. 15 According to the consolidated general government budgetary accounts on a cash basis. 16 The budget balance excluding net interest payments. 17 In addition to the already mentioned tax rate increases and the broadening of the social contribution base, the government measures on the revenue side include extension of the fourth personal income tax bracket and measures for more efficient tax collection. The measures to contain expenditure include extending some austerity measures concerning compensation of employees (except promotion rises) and social transfers, and lowering expenditure on subsidies and goods and services. dynamics at the end of the year, and hence a wider deficit in the year as a whole than in the first ten months. The net surplus of the state budget against the EU budget In the first eleven months of 2015 was smaller (EUR 404.2 m) than In the same period of 2014 (EUR 434.1 m) owIng to the lower receIpts under the Common AgrIcultural and FIsherIes PolIcIes and from the Structural Funds. Slovenia's receipts from the EU budget totalled EUR 794.7 m, which is 74.9% of the level envisaged in the revised budget for 2015; its payments to the EU budget amounted to EUR 390.4 m, 102.2% of the amount planned. The bulk of receipts were from the Cohesion Fund. They were significantly higher than a year earlier due to the expiry of the deadline for absorption under the previous financial perspective (2007-2013) at the end of the year. FIgure 25: Receipts from the EU budget, January -November 2014 and 2015 ■ Total receipts (Jan-Nov 201 5) ■ Total receipts (Jan-Nov 2014) Structural Funds Cohesion Fund Common Agricultural Policy Other 100 150 200 250 300 In EUR m Source: MF; calculations by IMAD. 0 50 selected topics Slovenian Economic Mirror, November 2015 21 Selected Topics Human Development Index According to the Human Development Index (HDI), Slovenia remained in the group of countries with very high levels of human development in 2014,'8 ranking 12th in the EU and 25th among the 188 countries covered by the report. The highest index value was again recorded for Norway (0.944) and, among the EU Member States, Denmark (0.932). The HDI value for Slovenia has been fairly stable in recent years (at 0.880 in 2014 and 0.876 in 2010).19 Slovenia's relatively high position on the three dimensions20 measured by the HDI is mainly attributable to education. Compared with 2013, life expectancy increased by 0.5 years to 80.4 and gross national income per capita in purchasing power parity (in USD) by 1,043 to 27,852. In addition to the composite indicator (HDI), the report also comprises three additional indicators: the IHDI (the Inequality-Adjusted Human Development Figure 26: Human Development Index (HDI) and the indicator of life expectancy for EU Member States ranked by the income dimension, 2014 I Life expectancy at birth (right exis) ♦ HDI (left axis) ♦ ♦ JWZÛÛ