Slovenian economic mirror May 2009, No. 5. Vol. XV Slovenian Economic Mirror ISSN 1318-3826 No. 5 / Vol. XV / 2009 Publisher: IMAD, Ljubljana, Gregorčičeva 27 Director: Boštjan Vasle, MSc Editor in Chief: Jure Brložnik, MA Matej Adamič (International Environment); Barbara Ferk, MSc, Katarina Ivas, Janez Kušar, Ivo Lavrač, PhD, Jože Markič, PhD, Tina Nenadič, MSc, Jure Povšnar (Economic Developments in Slovenia); Saša Kovačič, Tomaž Kraigher, Ana T. Selan, MSc (Labour Market); Slavica Jurančič, Miha Trošt (Prices); Jože Markič, PhD (Balance of Payments); Marjan Hafner (Financial Markets); Barbara Knapič Navarrete, Jasna Kondža (Public Finance); Judita Mirjana Novak (Performance of Companies and Cooperatives in 2008). Editorial Board: Lidija Apohal Vučkovič, Marijana Bednaš, MSc, Alenka Kajzer, PhD, Rotija Kmet Zupančič, MSc, Janez Kušar, Mateja Peternelj, MSc, Boštjan Vasle, MSc Translator: Marija Kavčič Language Editor: Terry Troy Jackson Data Preparation and Graphs: Bibijana Cirman Naglič, Marjeta Žigman Concept and Design: Katja Korinšek, Pristop DTP: Bibijana Cirman Naglič Print: Tiskarna Present Circulation: 90 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.........................................................................................................................................................................................14 Prices..................................................................................................................................................................................16 Balance of Payments.......................................................................................................................................................19 Financial Markets...................................................................................................................................................................................20 Public Finance.......................................................................................................................................................................................... 22 Selected Topics..............................................................................................................................................25 Performance of Companies and Cooperatives in 2008 ........................................................................................................27 Statistical Appendix......................................................................................................................................29 Boxes Box 1: Spring Forecasts by the IMF and EC..................................................................................................................8 Box 2: Movements on the Real Estate Market...........................................................................................................11 On January 2008, the new classification of activities of business entities NACE Rev.2, which replaced NACE Rev. 1.1, came into force in all EU Member States. In the Republic of Slovenia, the national version of the standard classification, SKD 2008, which includes the entire European classification of activities but also adds some national subclasses, came into force on the mentioned date. In the Slovenian Economic Mirror, all analyses are based on the SKD 2008, except when the previous SKD 2002 classification is explicitly referred to. More general information about the introduction of the new classification is available on the SORS website http://www.stat.si/eng/ skd nace 2008.asp. Slovenian Economic Mirror, May 2009 3 In the Spotlight In the spotlight In the first quarter of2009, GDP in the euro area declined even more than expected in the EC Spring Forecast, but confidence indicators started to improve in the last two months. In the first quarter, GDP in the euro area dropped most notably to date (-2.5%), by 4.6% y-o-y. The unemployment rate gradually rose, reaching 9.3% in March. One positive sign is that consumers and enterprises have become less pessimistic over the last two months and GDP forecasts are stabilising, after declining since last September. However, there are still considerable risks that the actual decline in the euro area might be even worse than predicted by the latest forecasts. In Slovenia, the monthly falling of economic activity indicators has started to slow. However, given the significant decline in the last two months of2008, their values are much lower than a year ago. According to seasonally adjusted data, the values of merchandise exports, industrial production in manufacturing and turnover in hotels and restaurants remained at about the same levels in the first three months of2009 as they were at the end of last year. Turnover in distributive trades recorded a more gradual decline, while the value of construction put in place slightly increased. Despite the current stabilisation, the first quarter saw one of the highest y-o-y declines in these indicators to date. Merchandise exports were down 22.9% in nominal terms and imports by 27.9%, and for the first time, trade in services also declined y-o-y. The volume of industrial production in manufacturing was 21.0% lower, and the data on inventories and new orders do not suggest any short-term acceleration of production. A similar situation can be observed for construction activity (-20.6%), where data on issued building permits indicate a decline in construction activity; the number of transactions and prices of second-hand dwellings are also falling. A relative stabilisation of economic conditions, albeit at a very low level, is suggested by the business climate indicator, which did not deteriorate in May, for the first time in 16 months. According to the Labour Force Survey, the number of persons in employment dropped by 3.9% in the first quarter relative to the previous quarter; furthermore, the number of registered unemployed increased to 84,519 in May. In the first three months, the number of employed persons declined most notably in manufacturing, construction, distributive trades, transport and other miscellaneous business services. In May, the number of registered unemployed was 38.2% higher than in the same period last year. The deterioration on the labour market is also reflected in the survey unemployment rate, which rose by 1.1 p.p. to 5.4% in Q1. The average gross wage per employee rose in nominal terms (3.1%) in March, after falling for three months. Its y-o-y growth was also stronger (5.3%). March also saw a considerable increase in private sector wages (4.0%) due to one-off payments related to business results and overtime work in 2008 in certain activities, while in the public sector (1.0%) wages only stagnated in public administration. In Q1, y-o-y wage growth (5.5%) was more than 2 p.p. lower than in the same period of2008; wage growth in the public sector was more than 5 p.p. faster, while in the private sector it was slower by the same amount. Inflation also continued to slow in May, and y-o-y inflation dropped to 0.7%. Pressures on prices are easing in most price groups, which is largely due to slowing economic activity; the slowdown is also in large part a consequence of the base effect related to oil and food prices. Y-o-y inflation in the total euro area (0.0%) is slowing for similar reasons. In the first quarter of 2009, the current account deficit was EUR 312.8 m lower y-o-y and international financial transactions posted a net capital inflow for the first time in two years. The lower deficit was largely underpinned by a lower deficit in goods due to a larger decline in imports than exports. The deficit in factor incomes was also lower, due to lower net interest payments abroad. In the first quarter, the bulk of the net capital outflow (EUR 176.4 m) came from the outflow of other investment (EUR 832.7 m), with the highest outflow of currency and deposits. The lending activity of domestic banks remained modest also in April, despite the government bank deposit of EUR 1.3 bn. In April, banks granted loans in a net amount of EUR 104.9 m, about a third of the monthly average in the last 12 months, whereas they net repaid foreign loans for the fifth month in a row. The primary source of liquidity remained government deposits, which increased by EUR 2.2 bn in the four months to April. By our estimate, banks used the bulk of these funds to repay foreign loans. Household deposits declined in April, for the second month in a row, and were a mere 2.0% higher than at the beginning of the year. Their maturity structure continues to change in favour of long-term deposits. Slovenian Economic Mirror, May 2009 4 In the Spotlight The gap between general government revenue and expenditure widened considerably in the first three months. According to non-consolidated data, general government revenue dropped by 7.8% in the first three months of the year, while expenditure rose by 15.0%. The deficit thus came to EUR 506 m. The decline in general government revenue and increasing expenditure are attributable to the operation of automatic stabilisers, while expenditure is also impacted by discretionary counter-cyclical measures and the effects of fiscal policy decisions in the previous year. Due to the widening gap between revenue and expenditure, the government is preparing the second supplementary budget. current economic trends Slovenian Economic Mirror, May 2009 7 Current Economic Trends International environment GDP in the euro area dropped by 2.5% in Q12009 relative to Q4 and was down 4.8% y-o-y. After declining significantly q-o-q in Q4 2008 (-1.8%), GDP dropped somewhat further in Q1 2009 (-2.5%). The largest negative contribution to the GDP decline came from exports (6.6 p.p.); due to a lower positive contribution of imports, the net exports thus had a negative impact on total growth. The GDP decline was also to a large extent affected by a negative contribution of investment (2.3 p.p.), while the contribution of inventories declined (-0.4 p.p.) relative to Q4 2008. A positive contribution to total growth (0.3 p.p.) only came from government consumption. In the first quarter, the GDP (q-o-q and y-o-y) declines were somewhat larger than predicted in the European Commission's spring forecast. Figure 2: Short-term indicators of economic activity in the euro area - Manufacturing - Construction Figure I: Structure of economic growth in the euro area Households Government 2 4 U 2 T 0 o C -2 0 1 -4 ■ Gross fixed capital formation ■ Exports of goods -GDP (right axis) Changes in inventories and valuables Imports of goods 4 3 2 £ _c i S 1 £2 & 0 s cc -1 -2 -3 -4 -5 Source: Eurostat; calculations by IMAD. business climate index rose for the first time since Q3 2007. The falling of interest rates on interbank markets continued in May. The value of the three-month EURIBOR declined by 0.14 p.p. relative to April, totalling 1.28% on average in the month as a whole. The falling of interest bank rates was mainly due to further drops in the ECB's key interest rate, which was cut by 0.25 p.p. to 1.0% in May. The latest ECB Bank Lending Survey nevertheless shows that the lending standards tightened further in the first quarter of 2009, but less than in the fourth quarter of 2008. The price of Brent crude increased once again, averaging USD 57.3 a barrel in May, up 14.2 from April, but down 53.3% y-o-y. Source: Eurostat. The falling of short-term indicators of economic activity in the euro area continued in March, while confidence indicators started to rise due to improved expectations. Seasonally adjusted declines in industrial production and turnover in retail trade moderated somewhat at the monthly level and the value of construction put in place even rose slightly in March relative to February. The indicators are still substantially lower than in the same period of 2008. In Q1, the volume of industrial production in the euro area was 20.4% lower y-o-y, construction put in place by 8.7% and turnover in retail trade by 3.7%. The unemployment rate rose by 1.1 p.p. in the first three months of 2009, to 9.3% in March. Y-o-y inflation dropped to 0.0% in May. Positive movements have been observed for confidence indicators, whose values rose, largely due to less pessimistic expectations. The business climate and the economic sentiment indicators for the euro area increased somewhat more notably in May, and the Ifo Figure 3: Movements of the price of a barrel of Brent crude 140 130 120 110 100 j 90 ! 80 70 60 50 40 - 2009 2008 - 2007 - 2006 \ /V A Va. an/ M A" Vi/ w "Mi \ / Xf n r v^jwr x V* As w Source: EIA. 115 ^ 95 90 85 tp 8 6 30 Slovenian Economic Mirror, May 2009 Current Economic Trends 8 Box 1: Spring forecasts by the IMF and EC According to the EC and IMF spring forecasts, economic activity will continue to ease in 2009, amid a pronounced further tightening of lending standards and a low level of trust between business entities. After the euro area entered a technical recession in Q3, the y-o-y GDP decline deepened in Q4 2008 and intensified further in Q1 2009. GDP in the euro area is thus set to decline by about 4.0% in real terms this year. A gradual recovery is projected to start in 2010, but GDP is still expected to drop in real terms in the year as a whole. GDP forecasts by international institutions for this and the next year have otherwise started to stabilise, which is also indicated by the Consensus Forecast of May. As expected, the EC revised downward its forecasts for 2009 and 2010 for all demand components (except general government consumption), increasing its unemployment rate forecast. As a result of markedly negative trends on the labour market and related lower disposable income growth, private consumption is set to decline by 0.9% this year; the downward revision of January's forecast for 2010 is even more pronounced, and the EC now expects a 0.3% decline. The decline in global trade will also have a stronger impact on euro area exports, which will drop by 13.2% this year and by 0.3% in 2010. Total investment will be down by 10.4% this year and 2.7% in 2010, despite increased government expenditure on investment. Only the government consumption forecast is higher than in January, as government consumption is set to maintain its past growth rates, increasing by 2.0% in 2009 and by 1.7% in 2010. The economic and financial crisis will also be strongly reflected on the labour market, where the unemployment rate in the euro area will increase to 9.9% this year and to 11.5% next year. Inflation, which will be influenced by the base effect up to mid-2009, will slow further amid weak economic activity in Q2 and Q3 2009, to an average of 0.4% for the year as a whole. In the following year, average inflation will rise to 1.2%. There are still risks that the actual GDP shrinkage may be even worse. According to the IMF estimate, the values of the adopted stimulus packages and plans in the G20 group represent 2.0% of GDP this year and 1.5% of GDP in 2010. However, the IMF highlights the high uncertainty of the current forecast, as there are still considerable risks that the actual GDP shrinkage may even be greater than the current forecasts. Among the main risks the IMF states the possibility that the adopted measures will not suffice in breaking the negative feedback loop between deteriorated financial conditions and shrinking economic growth. Another risk is associated with a possible further falling in property prices and losses on financial markets, which might impact the possibility of quickly restoring confidence in the financial system. Table 1: Comparison of the January and April IMF and EC forecasts Figure 4: Comparison of the April EC and IMF forecasts 2009 2010 IMF Jan 09 EC Jan 09 IMF Apr 09 EC Apr 09 CON May 09 IMF Jan 09 EC Jan 09 IMF Apr 09 EC Apr 09 CON May 09 EMU -2.0 -1.9 -4.2 -4.0 -3.7 0.2 0.4 -0.4 -0.1 0.3 EU -1.8 -1.8 -4.0 -4.0 -3.6 0.5 0.5 -0.3 -0.1 0.2 DE -2.5 -2.3 -5.6 -5.4 -5.0 0.1 0.7 -1.0 0.3 0.4 IT -2.1 -2.0 -4.4 -4.4 -4.0 -0.1 0.3 -0.4 0.1 0.1 AT N/A -1.2 -3.0 -4.0 -2.8 N/A 0.6 0.2 -0.1 -0.1 FR -1.9 -1.8 -3.0 -3.0 -2.5 0.7 0.4 0.4 -0.2 0.4 UK -2.8 -2.8 -4.1 -3.8 -3.8 0.2 0.2 0.4 0.1 0.3 US -1.6 -1.6 -2.8 -2.9 -2.9 1.6 1.7 0.0 0.9 1.8 Source: IMF World Economic Outlook (January 2009). European Commission Interim Forecast (January 2009). IMF World Economic Outlook (April 2009). European Commission Spring Forecast (April 2009). 12 10 8 6 4 S o Ö 2 0 -2 -4 I 2009 (EC Apr. 09) 2009 (IMF Apr. 09) 2010 (EC Apr. 09) 2010 (IMF Apr. 09) GDP Unemployment rate Inflation Source: EC Economic Forecast (April 2009), IMF World Economic Outlook (April 2009). In May, the euro appreciated against the US dollar and Japanese yen for the third month in a row. The value of the euro appreciated by 3.5% against the USD (the average exchange rate of USD 1. 3650 to EUR 1) and by 1.2% against the Japanese yen (the average exchange rate of JPY 131.84 to EUR 1), while the euro depreciated against the Swiss franc (by 0.2%; the average exchange rate of CHF 1.5118 to EUR 1) and the British pound sterling (by 1.5%; the average exchange rate GBP 0.8844 to EUR 1). Economic developments in Slovenia The falling of short-term indicators of economic activity slowed slightly at the monthly level in the first three months of this year, according to seasonally adjusted data, while in y-o-y terms, their values were significantly lower, mainly as a result of the sharp decline in the last two months of 2008. In the first three months of this year, the value of nominal merchandise exports, the volume of industrial Slovenian Economic Mirror, May 2009 9 Current Economic Trends production in manufacturing and real turnover in hotels and restaurants remained at about the same levels as at the end of last year, according to seasonally adjusted data. In construction, the value of construction put in place actually increased, while real turnover in distributive trades did not fall as steeply as in other activities at the end of last year, but posted a more gradual decline. All indicator values are significantly lower in y-o-y terms, most notably for nominal merchandise exports and the volume of industrial production in manufacturing. Figure 5: Values of short-term indicators of economic activity in Slovenia fU —» fU —» fU —» fU —» fU —» fU Source: SORS; calculations by IMAD. According to seasonally adjusted data, merchandise trade in March remained at roughly the same level for the third consecutive month, while Q1 2009 saw the greatest y-o-y decline since 1991.' The y-o-y drop in the value of merchandise trade had already started in Q4 2008, and in Q1 2009 merchandise exports were down by a nominal 22.9% and merchandise imports by 27.7%. According to seasonally adjusted data, in March merchandise exports were maintained at a similar level for the third month in a row, and the falling of imports slowed. The y-o-y decline in the value of merchandise trade intensified further in Q' and the drop in imports was even higher than that of exports. After the weak y-o-y growth in Q3 2008 (3.2%), Slovenian merchandise exports had already started to decline in Q4 (-8.9%). Due to the deepening recession in Slovenia's main foreign trading partners and a consequent decline in foreign orders, merchandise exports posted the greatest y-o-y drop to date in Q1 (-22.9%). A large part of Slovenia's merchandise exports depends on demand by industrial manufacturers in the EU, where production continues to shrink. Merchandise exports to EU countries, which had started to drop in Q3 2008 (-0.9%), and were dropping 1 According to the external trade statistics. Figure 6: Growth of Slovenian merchandise exports and economic growth in the EU -Merchandise exports (left axis)* -GDP in EU (right axis) 20 15 4 3 10 # 5 .£= 1 2 0 ct ro Ï -5 0 >^-10 -15 -20 -25 2 1 0 -1 -2 -3 -4 -5 a a a a Source: SORS, Eurostat. Note: *IMAD's estimate of Q1 merchandise exports. Figure 7: Geographic structure of merchandise export growth 20 — a a a a Source: SORS; calculations by IMAD. even more noticeably in Q4 2008 (-11.8%), thus shrank by as much as a quarter y-o-y in Q1 2009. Merchandise exports to non-EU countries, which were still dropping at a moderate rate (-2.2%) in the final quarter of 2008, also declined significantly in Q1 2009 (-21.8%), which is, by our estimate, largely due to rapidly deteriorating economic conditions in these countries, where the financial crisis spread with a time-lag. According to the available data on the structure of exports according to SITC for the first two months of 2009, the largest negative contribution to total merchandise exports came from road vehicle exports. The fall of exports was mitigated in part by increased exports of medicinal and pharmaceutical products, electricity and telecommunication products. Imports dropped even more notably than exports in y-o-y terms. After 10 Slovenian Economic Mirror, May 2009 Current Economic Trends still posting a relatively high figure in Q3 (10.1%), import growth declined in Q4 (-6.1%). In the first quarter of 2009, imports were down even more (-27.7%) than exports in y-o-y terms. The breakdown of merchandise trade by end-use products shows the greatest decline for imports of intermediate products, which is consistent with the decline in Slovenian industrial production. Figure 9: Industrial production in manufacturing Y-o-y • Seasonally adjusted, q-o-q Figure 8: Trade in services - Exports of services -Imports of services a a a a a a a a a Source: BS; calculations by IMAD. Trade in services is dropping y-o-y, albeit at a slower pace than merchandise trade. Exports of services, which still posted strong growth in Q4 2008 (13.9%), dropped notably in Q1 2009 (-12.8%). The decline was mainly underpinned by exports of road transport and travel services. After posting moderate growth in Q4 2008 (1.5%), imports of services also dropped y-o-y in Q1 (-5.6%). Among the main groups according to SITC, only imports of travel services contributed to this growth, while the contributions of transport and other services were negative. In March, the volume of industrial production in manufacturing remained at roughly the same level as the month before and in Q12009, production activity was down by nearly a fifth y-o-y. According to seasonally adjusted data, industrial production rose by a modest 0.8% relative to February, thus hovering at a similarly low level for as long as three months. The fast decline in production activity has thus ceased in the last few months. In the first three months, the volume of production was on average by more than one fifth (-21.0%, working-day adjusted data) lower y-o-y, chiefly due to a steep decline in production at the end of last year. Amid the otherwise markedly lower real turnovers from sales on all markets, turnovers outside the euro area posted the most significant drop. Industrial production trends in other EU Member States are similar, with the lowest decline posted for consumer goods. In the EU-27 average, the volume of production dropped 12 8 4 0 0 ° -4 -C s or -8 <3 -12 -16 -20 -24 a a Source: SORS; calculations by IMAD. slightly less than in Slovenia in Q1 (by 19.4%). Both in Slovenia and in the EU average, production activity dropped most notably in intermediate and investment goods (over 20%, all). With further accumulation of inventories in these activities in Slovenia and an exceptionally low figure for total new orders, production of these goods is not expected to accelerate in the months to come. In the first quarter this year, the lowest decline in production activity was recorded for consumer goods, where production shrank much more in Slovenia than on average in the EU Member States (-7.1%), both for durable and non-durable goods. In the group of consumer goods, inventories in Slovenia declined in the first quarter of this year and turnover from sales dropped much less than production; there was also an increase in new orders, which suggests that trends are set to improve in the following months. Figure 10: Turnover from sales and production by industrial groupings - Q4 2008/ Q4 2007 - Q1 2009/ Q1 2008 Turnover from sale by geographic Production by main industrial area groupings * JL j 1 J (m ™ à & Source: Public Payments Administration; calculations by IMAD. 30 25 20 10 5 0 -15 0 15 Slovenian Economic Mirror, May 2009 11 Current Economic Trends Box 2: Movements on the real estate market Figure 11: Movement of prices and transactions in second-hand flats on the real estate market 140 130 120 110 o o II 100 o 90 O X 80 o 70 60 50 40 Transactions-SORS Prices-SORS -Transactions-SMARS - Prices-SMARS According to the SORS and SMARS (Surveying and Mapping Authority of the Republic of Slovenia) data, the falling of the number of transactions and prices on the real estate market intensified further in the first quarter of this year.1 The number of reported and cleansed market transactions in secondhand flats,2 which represent the greatest part of the real estate market in Slovenia, continued to drop sharply in the first quarter of this year. According to the SORS data, it declined by 18.4% relative to the previous quarter (SMARS: -18.2%), and was 55.7% lower y-o-y (SMARS: -57.6%). Due to further data cleansing, the number of transactions in flats as shown by SORS is even somewhat lower, having dropped to 662 in the first quarter, which is approximately 30% of the highest turnover recorded in previous years. The decline in transactions in flats is gradual and to a lesser extent and with a time lag already affecting the movement and indices of prices of flats. Though this expression is used by both sources, in SORS calculations it means the average movement of implicit prices of characteristics of second-hand flats, while in SMARS analyses it means the movement of the average value of all transactions included in the database. According to the SORS data, prices continue to fall, having declined by 3.2% relative to the final quarter of 2008 (SMARS: -6.0%), down by 7.1% y-o-y (SMARS: -8.7%). Due to the additional cleansing of transactions covered by the analysis and elimination of the impacts of structural changes, the movement as indicated by SORS is somewhat less volatile than that shown by SMARS. With regard to the last year's peak, the cumulative drop in pFices totals 7.1% according to SORS ( SMARS: -12.2%). y / /S. N / y / / r/ s. N // —- M \ \\ \\ VV Ns V a a a a a a a Source: SORS, SMARS; calculations by IMAD. 1 For basic methodological differences see SEM, December 2008. 2 The SMARS data also include a small amount of new flats. SORS uses the same data, but omits less probable and outlier figures According to the data on business trends in manufacturing, the current situation indicators were still very low in May, but the indicators of expectations for the following months significantly improved. The latter is otherwise true for all indicators of expectations (production, prices, employment, exports and total demand), but enterprises are still fairly pessimistic regarding expected employment, as the share of enterprises expecting the number of their employees to drop exceeds by 44 p.p. the share of those expecting to create jobs in the next three months. In the first quarter of 2009, 14,490 (6.5%) fewer workers were employed in the manufacturing sector than in the same period last year, and productivity declined by as much as 14.9%. Even though the average gross wage ceased to grow, we estimate that there was a considerable increase in the share of labour costs in value added in manufacturing in the first quarter of 2009. In the first quarter, construction activity was higher than in the final quarter of last year, though by a fifth lower than in the same period last year. According to seasonally adjusted data, the value of construction put in place remained the same as in February, yet notably lower than at the beginning of last year. In Q1, the value of construction put in place was 20.6% lower than in the same period last year, or 4.2% higher than in Q4 last year. Compared to the first quarter of 2008, the value of construction put in place dropped by 29.8% in non-residential construction, by 20.0% in civil-engineering works, while the value of residential construction2 increased by 5.9%. Figure 12: Value of construction put in place 70 60 50 40 Ž 30 ï o o> 20 o ^ 10 0 - Construction ■ Civil engineering - Buildings a a a a a a a a a a a Source: SORS; calculations by IMAD. 2 In interpreting the figure on the value of residential construction put in place it should be noted that it excludes the activity of smaller enterprises, where, by our estimate, the main activity is the construction of buildings. Slovenian Economic Mirror, May 2009 12 Current Economic Trends Figure 13: Issued building permits 1,100,000 1,000,000 900,000 800,000 700,000 600,000 2 500,000 400,000 300,000 200,000 100,000 Non-residential buildings Residential buildings Table 2: Selected monthly indicators of economic activity in Slovenia Data on issued building permits indicate lower activity in the following months. The building permits issued in the first quarter were intended for the construction of 1,231 new dwelling, 42.3% less than in the same period last year (the total planned floor area of these dwellings was 27.6% smaller). The total planned area of non-residential buildings was also 24.7% smaller, mainly as a result of smaller planned floor areas of hotels and similar buildings as well as industrial buildings. With a surplus of hydroelectric output and low electricity consumption, Slovenia recorded net electricity exports again in April, despite the regular overhaul of the Krško nuclear power plant. Electricity output was down 29.8% y-o-y in April, largely owing to a one-month shutdown of the Krško nuclear power plant (which otherwise generates about 40% of Slovenia's electricity output) due to the aforementioned overhaul. Nearly half of the nuclear power Figure 14: Electricity production and consumption -Electricity production -Electricity consumption h 4 V J V In % 2008 III 09/ II 09 III 09/ III 09 I-III 09/ I-III 08 Exports1 4.7 10.6 -18.3 -21.2 -goods 1.2 8.5 -19.7 -22.9 -services 20.8 20.0 -12.0 -12.8 Imports1 6.1 11.3 -21.4 -25.3 -goods 5.5 11.6 -23.6 -27.8 -services 9.8 9.2 -5.1 -5.6 Industrial production -1.2 0.22 -18.53 -18.9 -manufacturing -1.3 0.82 -19.53 -20.4 Construction -value of construction put in place 15.7 0.12 -13.63 -20.6 Distributive trade - turnover in distributive trade and the sale and repair of motor wehicles 10.4 0.12 -9.73 -9.7 Hotels and restaurants - turnover in hotels and restaurants -4.0 0.62 -7.43 -8.8 Sources: BS, SORS; calculations by IMAD. Notes: 1balance of payments statistics, 2seasonally adjusted ,3working-day adjusted data. shortfall was offset by increased electricity generation in hydroelectric power plants (a rise of 87.0%). The output in thermal power plants also declined (by 21.5%), given that electricity demand dropped markedly due to the economic crisis. In April, electricity consumption dropped even more notably y-o-y than in previous months (by 20.5%), which was, in addition to the crisis, also due to the Easter holiday. Net electricity exports were seven times lower than last April, but still accounted for 2.9% of total electricity output. In March, real turnover in retail trade3 remained at the same level as in the previous month, while the quarterly real turnover was lower y-o-y, for the first time since data have been available (January 2001). In March, turnover in retail trade dropped again y-o-y in all sectors. Turnover also declined in all sectors y-o-y in the first quarter as a whole, most notably in those related to durable goods. In the first quarter, turnover in the sale of non-food products was down y-o-y, for the first time since the beginning of measurement, largely owing to a drop (by almost one fifth) of turnover in stores selling furniture, household equipment, construction material and audio/video records. Turnover in the sale of motor vehicles was lower for the second quarter in a row, in large part due to a more than a fifth lower number of first passenger car registrations. After last year's strong growth, turnover in the sale of automotive fuels posted the greatest decline on record in the first quarter of 2009, while turnover in the sale of food, beverages and tobacco remained at about the same level as in 2008. Activity is expected to slow further in the coming months, because in May the confidence indicator in retail trade remained at the same low value of April. Source: ELES; calculations by IMAD. 3 In retail trade, sale and repair of motor vehicles (47+45). 0 1300 1200 a 1000 Slovenian Economic Mirror, May 2009 13 Current Economic Trends Figure 15: Turnover in the sale of motor vehicles and specialised stores selling non-food products - Automotive fuel - Food, beverages, tobacco - Non-food - Wholesale, retail trade and repair of motor vehicles and motorcycles Retail trade aaoaaaoa a a Source: SORS; calculations by IMAD. Activity in hotels and restaurants increased at the monthly level in March, for the first time in several months, while the quarterly real turnover dropped again y-o-y. The lower y-o-y turnover in hotels and restaurants in March was also due to the different timing of Easter holiday this year. In y-o-y terms, the number of tourist arrivals and overnight stays also dropped again in March; within that, overnight stays by foreign tourists by one quarter. The turnover in hotels and restaurants dropped again, posting the greatest decline in the first quarter since data have been available (January 2001). Tourist arrivals and overnight stays also declined in the first quarter, the latter on account of fewer overnight stays by foreign tourists. Figure 16: Tourist overnight stays and turnover in hotels and restaurants - Turnover in hotels and restaurants - Overnight stays - total Overnight stays -foreign Overnight stays - domestic 16 12 8 -C S 4 or rg ^ 0 o -4 * z \ aV , /V/ \ / \ sj ' xi o V. šv \ \ \ \ / / ' \ V , \ a a a a a a a a a Short-term indicators show moderate growth of household spending in Q1, while consumers' pessimism dropped to a six-month low in May. According to the most recent Business Tendency and Consumer Survey, consumers are notably less pessimistic about their financial situation and expected employment in the next 12 months than in previous months. In contrast, they perceive the overall economic situation in the last 12 months as the worst thus far (data available since March 1996). Subdued growth of household spending is, among other things, also suggested by data on household borrowing, which slowed significantly in the first four months of this year, as the net flow of loans raised by households reached a mere fifth of that posted in the same period last year and households made net repayment of consumer loans (their share in the volume structure dropped by 2.4 p.p. to 36.1%). Figure 17: Private consumption indicators ^^B Turnover in retail trade Net wage bill -No. of first registrations of passenger cars by natural persons (right) 50 Source: SORS, MI-IAAD. Figure 18: Business tendency ■ Economic sentiment ■ Retail trade ■ Service act. Manufacturing Consumers Construction Source: SORS; calculations by IMAD. O < Source: SORS. 20 40 15 30 10 20 5 10 0 0 15 40 30 20 10 0 -12 -16 14 Slovenian Economic Mirror, May 2009 Current Economic Trends The value of the business sentiment indicator did not decline in May, for the first time in '6 months, largely owing to increased confidence in services and a higher consumer confidence indicator. The confidence indicators also rose in construction and manufacturing, while in retail trade confidence remained unchanged. Labour market The decline in employment moderated somewhat in March. The number of persons in employment according to the statistical register of employment dropped again in March (by 0.3% or 2,713 persons) and was thus already 0.9% lower than a year before. Employment is still declining in manufacturing, construction, distributive trades, transport and other miscellaneous business services, while employment in public services continues to rise. The number of vacancies declined seasonally, and the number of persons hired increased seasonally in April. Both were by roughly a third lower than a year before. The number of work permits for foreigners ceased growing. At the end of April, there were 569 fewer valid work permits than in March (92,073). Table 3: Persons in formal employment by activity Number in 1,000 Y-o-y growth rates, % 2008 XII 08 III 09 2008/ 2007 III 09/ XII 08 III 09/ II 09 III 09/ III 08 A Agriculture, forestry and fishing 39.7 38.8 37.8 -1.8 -2.4 0.2 -7.4 B Mining and quarrying 3.6 3.4 3.4 -5.2 -0.8 -0.6 -8.1 C Manufacturing 222.4 216.3 207.0 -0.5 -4.3 -1.2 -7.7 D Electricity, gas, steam and air conditioning supply 7.7 7.7 7.9 -1.1 1.6 0.4 2.6 E Water supply sewerage, waste management and remediation activities 8.8 9.0 9.0 4.7 -0.1 0.9 2.7 F Constrution 87.9 89.5 87.5 12.2 -2.2 -0.2 3.9 G Wholesale and retail trade, repair of motor vehicles and motorcycles 115.8 116.9 115.7 3.5 -1.0 -0.2 0.5 H Transportation and storage 51.2 51.4 50.4 5.4 -2.0 -0.7 -0.7 I Accommodation and food service activities 33.8 34.3 33.8 1.7 -1.3 -0.2 1.2 J Information and communication 21.9 22.4 22.5 4.8 0.3 0.0 4.1 K Financial and insurance activities 24.3 24.6 24.7 4.2 0.1 0.0 2.9 L Real estate activities 4.2 4.3 4.3 9.6 -0.2 -0.4 7.3 M Professional, scientific and technical activities 42.8 44.4 44.2 7.1 -0.5 0.0 5.7 N Administrative and support service activities 26.0 26.0 25.3 5.2 -3.0 -0.8 -2.0 O Public administration and defence, compulsory social security 51.0 50.8 51.3 1.3 0.9 0.5 1.1 P Education 60.0 61.0 61.7 1.5 1.1 0.4 2.6 Q Human health and social work activities 51.0 51.6 52.0 2.7 0.8 0.5 2.3 R Arts, entertainment and recreation 13.8 14.0 14.1 6.5 0.3 0.4 1.9 S Other service activities 12.8 13.1 13.1 1.3 -0.1 0.4 4.9 T Activities of households as employers, undiferentiated goods - and services - producing activities of households for own use 0.5 0.5 0.5 6.4 1.0 2.1 10.3 Source: Public Payments Administration; calculations by IMAD. Figure '9: Persons in employment by activity Source: SORS; calculations by IMAD. Slovenian Economic Mirror, May 2009 15 Current Economic Trends In the first quarter of 2009, the average number of persons in employment according to the statistical register was 0.2% lower y-o-y, and 1.8% lower q-o-q. The number of employed persons according to the Labour Force Survey was also lower than in the previous quarter (by 3.9%) and lower than in the same quarter last year (by 0.9%). Broken down by activities, the number of persons in employment declined most notably relative to the previous quarter in manufacturing, construction, agriculture, distributive trades, transport and other miscellaneous business activities and hotels and restaurants, whereas it increased the most in education and health and social care. It is lower than in the same quarter of 2008 only in manufacturing, agriculture and mining and quarrying. The number of the registered unemployed continues to increase. It rose by 3,150 persons (4.0%) in April, to 82,832, which is 32.7% more than in the previous April. A total of 9,468 people registered anew, 8,160 of whom because they had lost work, which is more than in the previous two months and up by a solid quarter over the same month in 2008. Altogether 3,680 unemployed people were hired, which is also more than in the previous two months or in April last year. The number of the registered unemployed declined by a further 2,407 for other reasons. The registered unemployment rate rose to 8.4% in March. The survey unemployment rate increased as well, to 5.4%, which is 1.1 p.p. more than in the last quarter and 0.3 p.p. more than in the same quarter of 2008. The number of the unemployed also increased in May, to 84,519, which is already 18,280 more than in December and 23,355 (38.2%) more than in the previous May. Figure 20: Components of the increase in registered unemployment Other outflows from unemployment (net) Unemployed persons who found work Lost work New first-time job-seekers -CHANGE 12 -53 9 c -9 ro^ocuro^ocuro S- 8 4 0 Source: SORS; calculations by IMAD. 4 Delayed payments (which account for around 3.0% of the average gross wage in the private sector and also include extraordinary payments based on business results and payments for overtime work in the previous year) contributed 1.1 p.p. or 28.0% to the 4.0% growth of this sector's gross wage (an above-average contribution to growth came from wages in information and communication activities, manufacturing (above 40.0%), other miscellaneous business activities and distributive trade (33.0%)). March, the average gross wage in the public sector was 1.0% higher than in the previous month, practically stagnating in public administration (-0.1%), while increasing everywhere else. Growth of the gross wage in the public sector rebounded y-o-y (11.5%) and remained notably higher than in the private sector. It was 12.0% in the first quarter as a whole, the highest in health (21.4%) and lowest in education and recreational, cultural and sporting activities (6.9%). Prices The slowdown in inflation also continued in May. Amid the 0.6% increase in consumer prices relative to April (1.1% last year), y-o-y inflation declined once again as expected, to 0.7% (6.4% last year). Pressures on prices are easing in most price groups, which is largely related to slowing economic activity; the slowdown is also in large part a consequence of the base effect. Prices increased by 1.8 % in the first five months of the year (last year by 3.2%). As expected, y-o-y inflation also dropped in April, similar to previous months. The slowdown of inflation was significantly influenced by the base effect related to the rising prices of oil and non-oil commodities on global markets in the first half of last year. This effect is reflected in a negative contribution to y-o-y inflation of the decline in prices of liquid fuels for transport and heating (-0.8 p.p.) and a modest contribution of food prices (0.3 p.p.). There are ever more signs that inflationary pressures resulting from economic activity are easing. In the last few months, the growth of services prices was much slower, contributing 0.8 p.p. to 1.1% y-o-y inflation in April; growth of prices of other goods is slowing as well (0.8%). Figure 24: Breakdown of y-o-y inflation Source: Public Payments Administration; calculations by IMAD. 8 7 6 ra 3 o 2 0 Slovenian Economic Mirror, May 2009 17 Current Economic Trends Table 5: Prices 2008 2009 in % XII 2008/ XII 2007 ® (I 08-XII 08)/ ® (I 07-XII 07) IV 09/ III 09 IV 09/ IV 08 ® (III 08-IV 09)/ ® (III 07-IV 08) Consumer prices (CPI) 1.3 6.0 0.3 0.5 3.9 Goods -7.2 10.6 0.8 -4.6 4.9 - Fuel and energy 3.2 5.0 0.2 1.4 3.7 - Other 3.8 5.0 -0.3 2.5 4.2 Services 1.8 5.5 0.2 1.1 3.9 Consumer prices (HICP) -7.8 9.6 1.2 -6.5 3.3 Administered prices1 -11.9 14.4 1.2 -11.5 5.2 - Energy 0.4 0.1 1.3 1.7 0.2 - Other 0.4 0.1 0.3 0.9 0.2 Core inflation - trimmean 2.6 3.9 0.2 1.6 3.1 - excluding (fresh) food & energy 3.9 4.6 0.0 2.6 3.9 Consumer prices in the EMU 1.6 3.3 0.4 0.6 2.4 Producer prices of domestic manufacturers - domestic market 3.5 5.6 0.0 0.2 3.9 - EMU 0.1 2.2 -1.3 -3.1 1.4 Sources: SORS, Eurostat; calculations by IMAD. Note: 1 due to annual changes of the administered price index. figures are not directly comparable across years. Producer prices of manufactured goods on the domestic market remained unchanged in April, for the second month running. Prices in the manufacture of metal products increased somewhat, while prices in the manufacture of metals and in the manufacture of food products continued to decline. Over the past twelve months, prices in the manufacture of metals dropped by 22.6% and in the manufacture of food by 3.0%. The falling of prices in both product groups is also the main reason for the Figure 25: Inflation in Slovenia and in the whole euro area ■ Slovenia: Inflation Slovenia: Inflat. excl. energy and unproces. food ■ Euro area: Inflation Euro area: Inflat. excl. energy and unproces. food 7 6 5 S !4 2 Figure 26: Producer prices of manufactured goods on the domestic market - Total -Manifacturing of food products -----Mfr. of metals and metal products, machinery and equipment 18 15 12 9 ë 6 ï o m 3 I 0 -3 Source: SORS, Eurostat. Source: SORS. significant moderation in y-o-y growth of manufactured goods. After being at 6.7% as late as in August, it was at a mere 0.2% in April this year. After being stable for the first two months, price competitiveness of the economy deteriorated somewhat in March. The real effective exchange rate deflated by relative consumer prices strengthened at the monthly level (1.4%) as well as y-o-y (0.8%) in March. Its growth 8 12 3 Slovenian Economic Mirror, May 2009 18 Current Economic Trends was a result of the rising exchange rate, as well as relative prices5. The nominal effective exchange rate increased at the monthly level by 0.6%, due to the appreciation of the euro against the USD, JPY and CHF, and its y-o-y decline therefore slowed (to -0.1%). The growth of relative prices also strengthened in March (to 0.8% at the monthly level and to 0.9% y-o-y) as a result of somewhat faster monthly consumer price growth in Slovenia and moderate growth in Slovenia's trading partners. Despite the deteriorated movements in March, the average price competitiveness in the first quarter did not diverge significantly from the comparable levels in the last and first quarters of 2008 (0.9% and 0.4% deteriorations). After improving for two months, price competitiveness in manufacturing also worsened in March, which resulted in a stronger deterioration y-o-y. After two months of falling, the real effective exchange rate deflated by relative producer prices in manufacturing (on the domestic market) increased by 0.9%, which contributed to an increase in its already higher y-o-y growth (from 2.5% to 3.1%). In the first quarter, the average price competitiveness in manufacturing declined much more than that in the whole economy, in both q-o-q and y-o-y terms (both by 2.7%). With fairly similar consumer price dynamics in Slovenia and its trading partners, the gap between producer price dynamics in Slovenian manufacturing and in Slovenia's trading partners was slightly wider. Figure27: Real and nominal effective exchange rate Figure 28: Real effective exchange rates against the main trading partners deflated by CPI Nominal effective exchange rate - Real, deflated by CPI -Real, deflated by PPI - Total (20 trading partners)* EMU (7) -EU outside EMU (7) -Outside EU (6) Source: ECB, SORS, OECD; calculations by IMAD. Note: * includes Croatia, Russia and Turkey. posted for the price competitiveness of merchandise exports to Slovenia's main non-euro-area trading partners in the EU, owing to a significant appreciation of the euro against most other EU currencies. In the first quarter, it worsened as much as 12.5% on average y-o-y, largely on account of the pronounced appreciation of the euro against the PLN, GBP, SEK and HUF. Particularly due to a significant appreciation of the euro against the RUB, price competitiveness of merchandise exports to Slovenia's main trading partners outside EU also deteriorated with regard to the final quarter of 2009, but was still significantly better y-o-y (by 6.8%). Its y-o-y improvement was largely a result of a strong y-o-y euro depreciation against the USD and JPY, and to a smaller extent also against the CHF. Figure 29: Exchange rates of the euro in the first quarter of 2009 Source: ECB, SORS, OECD; calculations by IMAD. By currency areas, price competitiveness movement diverged significantly from the relatively small deterioration at the aggregate level, when measured by relative consumer prices6. A significant deterioration was -20 5 In Slovenia, compared with its trading partners. 6 Against the broad group of 20 trading partners, including Croatia, Russia and Turkey. GBP SEK CZK HUF PLN USD CHF JPY HRK RUB Source: ECB, SORS, OECD; calculations by IMAD. 14 12 10 8 6 # 4 1 2 CT ^ 0 o -2 -4 5 4 3 2 o 1 0 20 10 0 Slovenian Economic Mirror, May 2009 19 Current Economic Trends Balance of payments The current account deficit totalled EUR 40.8 m in March, reaching EUR 154.9 m in Q1 2009. The y-o-y decline (by EUR 312.8 m) was largely a result of a lower deficit in merchandise trade. The deficit in factor incomes and the surplus in the services balance also declined, while the deficit in current transfers was somewhat higher. The merchandise deficit narrowed significantly in Q1 2009, after posting steady y-o-y growth since Q3 2005. The trade deficit movement is counter-cyclical, which is typical of most small open economies. With lower economic activity amid a greater drop in imports than exports and improved terms of trade, the trade deficit totalled EUR 100.6 m in Q1 2009. In the first two months of 2009, the terms of trade namely improved by 4.3% y-o-y7. Export prices declined by 1.5% y-o-y in the first two months of this year, and import prices by 5.6%, largely on account of plummeting prices of oil and non-oil commodities. Amid the recession, the fall in domestic economic activity is mitigated by improved terms of trade. The surplus in the services balance, which had been strengthening y-o-y since Q2 2008, narrowed by EUR 99.1 m in Q1 2009, to EUR 268.5 m. The decline was mainly underpinned by a lower surplus in trade of travel and road transport services. Also in Q1, the factor income deficit narrowed chiefly on account of net interest payments on foreign loans. Table 6: Balance of payments I-III 09, EUR m Inflows Outflows Balance1 Balance, I-III 08 Current account 5,244.7 5,399.6 -154.9 -467.7 - Trade balance (FOB) 3,916.9 4,017.5 -100.6 -484.7 - Services 947.2 678.6 268.5 367.7 - Income 250.8 457.3 -206.5 -239.4 Current transfers 129.8 246.2 -116.3 -111.2 Capital and financial account -492.3 424.8 -67.5 419.3 - Capital account 43.0 -47.9 -4.9 -0.9 - Capital transfers 42.4 -45.8 -3.4 0.2 - Non-produced, non-financial assets 0.6 -2.1 -1.5 -1.1 - Financial account -535.3 472.7 -62.6 420.2 - Direct investment -48.2 -114.1 -162.3 147.8 - Portfolio investment 251.0 583.8 834.8 301.3 - Financial derivates -20.1 3.8 -16.2 2.4 - Other investment -831.9 -0.8 -832.7 50.0 - Assets 820.8 -0.8 820.0 -997.3 - Liabilities -1,652.7 0.0 -1,652.7 1,047.3 -Reserve assets 113.8 0.0 113.8 -81.3 Net errors and omissions 222.4 0.0 222.4 48.4 Sources: BS. Note: 1a minus sign (-) in the balance indicates a surplus of imports over exports in the current account and a rise in assets in the capital and financial account and the central bank's international reserves. Figure 30: Components of the current account balance I Trade balance I Factor incomes -Current account Services balance Current transfers Source: BS. This narrowing was mainly a result of lower net interest payments by domestic commercial banks, and to some extent also by the BS and enterprises, due to declining interest rates on international financial markets. The net expenditure from direct investment has not yet changed significantly y-o-y. The deficit in current transfers widened 0 7 According to the external trade statistics. 20 Slovenian Economic Mirror, May 2009 Current Economic Trends largely as a consequence of a higher deficit of the state budget against the EU budget. External financial transactions (excluding international monetary reserves) posted a net capital outflow of EUR '76.4 m in Q' 2009, following two years of net capital inflows (in the same period of2008, the net inflow totalled EUR 50'.5 m). In Q1, the net capital outflow was chiefly due to the net outflow of other investment, in part also of direct investment, while the net capital inflow generated by portfolio investment posted a y-o-y increase. Direct investment posted a net outflow of EUR 162.3 m in Q1 2009. Outward direct investment otherwise declined due to modest investment in equity capital. Foreign investment enterprises repaid loans in net to foreign parent companies and affiliated enterprises, and equity capital flows were low. Portfolio investment reached a net capital inflow of EUR 834.8 m in Q1 2009. For budgetary financing and purchases of existing bonds, the government issued a benchmark government bond, which was largely bought by banks and investment funds. The net capital outflow from other investment, recorded for the second quarter in a row, totalled EUR 832.7 m in the first quarter of this year. The bulk of the net outflow came from currency and deposits (EUR 395.1 m), as the BS transferred a portion of its currency and deposits from abroad on account of its position towards the Eurosystem. The access to finance has not yet improved. Slovenia made a net repayment of EUR 229.1 m of foreign loans in Q1 2009. Figure 3': Financial transactions of the balance of payments Direct investment I Financial derivatives -Net financial flow Portfolio investment ■ Other investment 1000 800 Slovenia's gross external debt amounted to EUR 37.5 bn at the end of March (102.4% of estimated GDP) and gross external assets in debt instruments EUR 27.8 bn (75.8% of GDP). Net external debt reached EUR 9.8 bn by the end of March, dropping by EUR 54 m relative to February. Financial markets The lending activity of domestic banks also remained modest in April, despite the government deposit of EUR '.3 bn. Banks recorded net lending in the amount of EUR 104.9 m in April, just over a third of the monthly average in the last 12 months. By our estimate, banks allocate the bulk of funds they receive from the state for current and future net repayment of foreign loans, while sources on foreign interbank markets are still fairly limited, as banks net repaid this type of loans for the fifth month in a row. Government deposits are thus still the primary source of liquidity, and no longer household deposits, where only the maturity structure has been changing over the last two months (in favour of long-term deposits). The volume of net household borrowing strengthened somewhat in April, but nevertheless remained rather low. Higher net borrowing was entirely due to lower net repayment of foreign currency loans, which was, with EUR 4.3 m, at its three-month low. Households continue to mainly take out housing loans, though they also raised consumer loans in a net amount (EUR 1.7 m) in April, for the first time after five months of net repayment of this type of loans. In the first four months of 2009, banks recorded net lending to households in the amount of EUR 83.5 m (half of which in April), 13.1% of the figure posted in the comparable period of 2008. Enterprises and NFI net borrowed loans in the amount of EUR 46.2 m in April. The bulk of these loans is attributable to enterprises, as NFI only borrowed net EUR 2.7 m in that month. In comparison with previous months, a notable slowdown was recorded for investment loans, given that net flows of these loans (EUR 1.6 m) dropped to the lowest level since comparable data have been available (2005), which most likely reflects lower investment activity of Figure 32: Net flows and growth of domestic bank loans to domestic non-banking sectors I Households (left) I Government (left) - Enterprises$ NFI (right) Enterprises&NFI (left) Households (right) Total (right) COCOCOCOCOCOO^O^O^ Source: Public Payments Administration; calculations by IMAD. Source: BS 21 Slovenian Economic Mirror, May 2009 Current Economic Trends Table 7: Financial market indicators Domestic bank loans to non-banking sector and household savings Nominal amounts, EUR bn Nominal loan growth, % 31. XII 08 30. IV 08 30. IV 09/ 31. III 09 30. IV 09/ 31. XII 08 30. IV 09/ 30. IV 08 Loans total 31,549.1 32,101.8 0.3 1.8 11.8 Enterprises and NFI 23,137.5 23,488.1 0.2 1.5 12.0 Government 584.6 703.2 2.4 20.3 34.6 Households 7,827.0 7,910.5 0.5 1.1 9.3 Consumer credits 2,883.9 2,856.1 0.1 -1.0 2.4 Lending for house purchase 3,395.3 3,503.7 1.2 3.2 18.8 Other lending 1,547.7 1,550.7 -0.1 0.2 3.5 Bank deposits total 13,689.1 13,961.3 -0.2 2.0 7.6 Overnight deposits 5,249.4 5,278.9 0.0 0.6 -1.0 Short-term deposits 5,644.8 5,631.9 -1.9 -0.2 3.0 Long-term deposits 1,957.7 2,403.1 3.0 22.8 80.9 Deposits redeemable at notice 837.2 647.4 0.8 -22.7 -23.8 Mutual funds 1,513.4 1,537.8 8.3 1.6 -35.5 Sources: Monthly Bulletin of the BS, SMA (Securities Market Agency); calculations by IMAD. enterprises. At the same time, net borrowing of working capital loans reached EUR 108.1 m, the highest value in the last three months. We estimate that enterprises used these loans to offset liquidity shortfalls amid the loss of revenues from sales. Enterprises and NFI thus borrowed EUR 350.9 m in net from domestic banks in the first four months, nearly 80% less than in the comparable period last year. Following four consecutive months of net borrowing abroad, enterprises and NFI net repaid this type of loans in March, in the amount of EUR 0.4 m. Negative net flows are a consequence of the repayment of short-term loans, while long-term loans posted positive flows for the fifth month in a row. Despite net repayment in March, net flows in the first quarter (reaching EUR Figure 33: Net flows of corporate and NFI borrowing by purpose ■ Loans for gross fixed capital formation ■ Working capital loans COCOCOCOCOCOC^O^OÏ Source: Public Payments Administration; calculations by IMAD. 108.9 m) exceeded the value recorded in the comparable period last year by more than a tenth. Banks, in contrast, posted net repayment of loans taken out abroad for the fifth month in a row, in the amount of EUR 422.6 m, which is the second-highest value in this period. As enterprises and NFI, banks also net repaid short-term loans, while net long-term borrowing was positive for the first time this year. In Q1, banks thus net repaid foreign loans in the amount of EUR 601.0 m, while they had borrowed a net EUR 561.6 m in the same period last year. The y-o-y growth rate of the volume of loans continues to decline at an accelerated pace, dropping to 11.8% in April, the lowest figure since comparable data have been available (2005). The volume of foreign currency loans has been declining for the second month in a row, posting a decline of 3.5% y-o-y. In the first four months of 2009, banks recorded net lending to domestic non-banking sectors in the amount of EUR 552.7 m, slightly more than a quarter of that posted in the comparable period of 2008. Lending activity also remained weak in the euro area as a whole, where the y-o-y growth rate plunged to 2.5%, the lowest figure since the adoption of the euro in 2002. In the first four months of the year, net flows of loans (EUR 27.1 bn) only reached 7.8% of the value recorded in the comparable period last year. After stagnating in March, household deposits in banks declined in April. This development was largely a result of a high net outflow from short-term deposits, totalling more than EUR 100 m for the second month in a row. Also in April, a large portion of short-term deposits was transferred to long-term deposits, but their monthly growth (3%) was at the lowest level in the last five months, most likely also owing to rapidly declining deposit interest rates. We estimate that a large part Other loans Slovenian Economic Mirror, May 2009 22 Current Economic Trends of short-term deposits was also transferred to capital markets, which posted fairly high growth rates in April. Government deposits in domestic banks strengthened notably in April, as a result of the issue of a government bond in the amount of EUR 1.5 bn. Net flows were at EUR 1.3 bn, climbing to EUR 2.2 bn in the first four months. The total volume of government deposits thus nearly tripled y-o-y. Amid high inflows of government deposits to domestic banks, the maturity structure of these deposits remains rather unfavourable, given that more than 95% of government deposits are short-term. As a result of favourable movements on all (domestic and foreign) markets and after posting net outflows in March, mutual funds managed by domestic administrators recorded net inflows in April (for the second time this year), in the amount of EUR 5.1 m, which is otherwise far below the 2007 level, when the average monthly net inflows had been close to EUR 40 m. A detailed breakdown of net inflows reveals a change in savers' attitude towards risk, given that the greatest net inflow (EUR 3.7 m) was posted for a somewhat less risky mixed mutual fund. The volume of assets managed by domestic mutual funds increased in April, for the first time after ten consecutive months of decline (during which time it had lost more than a third of its value), posting 8.3% growth, the highest figure since January 2007. Most of this growth (over 90%) was due to the increase in the value of investment in mutual funds. Figure 34: Net flows of household and government deposits in banks Figure 35: Movement of the SBI20 and other main indices 800 700 600 500 400 I Households Government -30 CO CO CO CO CO CO OV Source: BS; calculations by IMAD. Turnover on the Ljubljana Stock Exchange dropped notably in April. Posting EUR 28.6 m, it reached the lowest value since 2000 and only two fifths of the 12-month average. The decline is a result of lower trading in bonds (by two thirds) and shares (nearly by half). Amid low turnover, the market capitalisation of securities listed on the Ljubljana Stock Exchange strengthened for the third time this year (this time by almost a tenth), largely as a result of additional borrowing of the government, which issued a bond (RS 65) FTSE -DOW -DAX -SBI20 50 40 Source: Finance.yahoo.com, www.mscibarra.com, Lbo. in the amount of EUR 1.5 bn in April, increasing the monthly market capitalisation of bonds by almost a fifth. Because of positive trends, the market capitalisation of shares also increased in April, by 2.1%. The SBI20 index rose for the second month in a row in May, by as much as 11.3%, the highest figure since the onset of the international financial crisis. In contrast, after increasing vigorously in April, indices on foreign capital markets recorded somewhat slower growth in May, except on the Tokyo stock exchange, where growth was still strong (7.9%), while other indices rose by around 3.5%. Public finance In the first four months of the year, revenue from taxes and social security contributions dropped by 7.9% relative to the same period last year. According to the data on paid taxes and social security contributions,8 the payments totalled EUR 4.2 bn. The slowdown of growth in general government revenue continued for all categories of taxes and contributions. In April, general government revenue was also influenced by final tax assessments for 2008, particularly of corporate income tax and value added tax. In the first four months, the fastest y-o-y rise was recorded for revenue from excise duties (16.2%), largely as a result of several increases of excise duties on liquid fuels for transport and heating in recent months and the increase in excise duties on alcohol in March. In the first four months, positive growth was also recorded for revenues from wage-related taxes, specifically from personal income tax (4.7%) and social security contributions (5.5%), although revenues from both these sources are slowing from month to month. Prepayments of corporate income tax are declining from month to month; only EUR 16 m 8 Public Payments Administration. 90 80 70 60 30 0 23 Slovenian Economic Mirror, May 2009 Current Economic Trends Tabale 8: Consolidated general government revenues and expenditure 2008 2009 EUR m % of GDP Growth, % I-II 2009 in EUR m II 09/ II 08 I-II 09/ I-II 08 Revenues - total 15,335.0 41.3 9.5 2,190.8 -2.9 -1.9 - Tax revenues 13,937.2 37.5 9.2 2,048.6 -3.5 -1.2 - Taxes on income and profit 3,442.1 9.3 18.0 489.3 8.4 10.1 - Social security contributions 5,095.0 13.7 10.8 857.1 5.9 7.9 - Domestic taxes on goods and servises 4,805.3 12.9 6.8 669.2 -15.9 -11.9 - Receipts from the EU budget 365.4 1.0 5.0 39.5 98.1 16.7 Expenditure - total 15,434.7 41.6 10.9 2,530.1 23.6 16.6 - Wages and other personnel expenditure 3,580.6 9.6 9.3 639.0 25.3 19.5 - Purchases of goods and services 2,525.9 6.8 14.2 351.0 6.2 8.5 - Transfers to individuals and households 5,616.2 15.1 10.3 943.7 9.0 9.8 - Capital expenditure 1,252.0 3.4 10.7 117.9 34.9 19.6 - Capital transfers 458.0 1.2 37.0 20.4 -28.9 3.7 - Payment to the EU budget 427.9 1.2 20.2 116.5 52.7 4.7 Source: MF. was paid in April, about 20% of the values recorded in the last few months. April's prepayment of corporate income tax was lower based on final tax assessments of business results for 2008 and the law applicable for 2008. In April, revenue from value added tax was notably higher than in March, but only 1.0% higher than in April 2008; in the first four months of 2009, revenue from this tax dropped by nearly 12% y-o-y, and (amid the problems regarding the timing of tax payments and refunds) suggests a decline in economic activity. According to the consolidated balance,9 general government revenue totalled EUR 2.2 bn and expenditure EUR 2.5 bn in the first two months. Revenue declined by 1.9% y-o-y (in the same period last year, it rose by 10.6%). Expenditure recorded 16.6% growth in the first two months, significantly higher than in the same period last year (3.7%). The decline in general government revenue and increasing expenditure are attributable to the operation of automatic stabilisers, while expenditure is also impacted by discretionary counter-cyclical measures and the effects of fiscal policy decisions in the previous year. Due to the widening gap between revenue and expenditure, the government is preparing the second supplementary budget. In terms of economic structure of expenditures, in the first two months the greatest y-o-y increase was seen in expenditure on investment and wages and other personnel expenditures. Growth of expenditure on goods and services and growth of transfers to individuals and households were lower than total growth, but still fairly strong. Among transfers, the highest increases are recorded for expenditure on transfers to the unemployed (34.2%) and expenditure on other transfers 9 The consolidated balance (according to the cash flow methodology) includes revenues and expenditures of state and local government budgets, as well as revenues and expenditures of the pension and health funds. to individuals and households (21.0%), within which free meals for secondary school students were introduced in last September and free kindergarten care for the second child in a family. Strong growth (12.9%) was also posted for family benefits and parental allowances, given the increases in the number of beneficiaries as well as their bases (wages). After February's valorisation of pensions, growth of expenditure on pensions was 9.4% in the first two months of the year. After growing at a modest pace in January, expenditure on social security transfers and expenditure on sickness benefits posted stronger growth in February (up 5.2% and 2.4%, respectively). February also saw a significant strengthening of expenditure on interest payments and subsidies and Slovenia's payments to the EU budget. Figure 36: Taxes and social security contributions -Taxes on income and profit -Social security contributions -----Domestic taxes on goods and services -----Other taxes 500 . 400 c 300 oi lmi cn 2 200 100 0 ygvbygvby auoeauoea 2