Slovenian economic mirror No. 3, Vol. XXII, 2016 Slovenian Economic Mirror ISSN 1318-3826 No. 3 / Vol. XXII / 2016 Publisher: IMAD, Ljubljana, Gregorčičeva 27 Responsible Person: Boštjan Vasle, MSc, Director Editor in Chief: Tina Nenadič, MSc Authors of Current Economic Trends (listed alphabetically): Jure Brložnik, Urška Brodar, MSc, Janez Dodič, Marjan Hafner, MSc, Katarina Ivas, MSc, Slavica Jurančič, Mojca Koprivnikar Šušteršič, Tanja Kosi Antolič, PhD, Janez Kušar, Jože Markič, PhD, Helena Mervic, Tina Nenadič, MSc, Mitja Perko, MSc, Jure Povšnar, Branka Tavčar, Ana T. Selan, MSc, Dragica Šuc, MSc, Ana Vidrih, MSc. Authors of Selected Topics: Mateja Kovač, MSc (International trade in agro-food products in 2015) Editorial Board: Marijana Bednaš, MSc, Aleš Delakorda, MSc, Lejla Fajic, 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..................................................................................................................................................................13 Prices..................................................................................................................................................................................16 Balance of payments.......................................................................................................................................................18 Financial markets.............................................................................................................................................................19 Public finance....................................................................................................................................................................20 Selected topic International trade in agro-food products in 2015...................................................................................................25 Statistical appendix.....................................................................................................................................................27 The Economic Mirror is prepared based on statistical data available by 6th May 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, No. 3/2016 3 In the Spotlight In the spotlight GDP growth in the euro area continued at the beginning of the year; the European Commission (EC) expects that GDP growth will remain similar to last year in 2016 and 2017. According to Eurostat's preliminary flash estimate, GDP in the euro area was up by 0.6% (seasonally adjusted) in the first quarter of 2016 and by 1.6% compared with the first quarter of the previous year. In its latest forecast, the EC did not change significantly its expectations about GDP growth in the euro area, projecting GDP to increase by 1.6% this year and by 1.8% in 2017. Growth will continue to be driven by domestic demand. The risks to the forecast remain significant. They are related to the possibility of slower growth of the global economy and trade. Activity increased further in most sectors in Slovenia at the beginning of the year. Merchandise exports and manufacturing production increased the most, under the impact of positive developments abroad. The improvement in labour market conditions and the strengthening of private consumption contributed to further growth in the trade sector and tourism-related services. Turnover also rose in most other market services. Activity in construction dropped to the lowest level since the beginning of 2013. Growth prospects remain favourable for most sectors, as most confidence indicators increased slightly at the beginning of the second quarter. The labour market situation continues to improve. Reflecting the strengthening of activity, the number of employed rose further in February in most activities of the private sector. It was up year-on-year particularly in manufacturing (where most of the workers hired by employment agencies were placed), and in trade, transportation and accommodation and food service activities. With a slightly larger outflow into employment and a smaller inflow into unemployment, the number of registered unemployed declined further in April. At the end of the month, 105,453 people were registered as unemployed, which is 8.2% less than one year earlier. Owing to good business performance, average gross earnings per employee in the private sector rose significantly in the last four months; in the general government sector they maintained their high level of December. This was attributable to promotions and increased overtime and extraordinary payments at the end of last year. Earnings also rose in public corporations, where they fluctuate significantly from month to month. Consumer prices remained lower year-on-year in April. The decline was still largely due to lower oil and other energy prices. In the absence of cost pressures, prices of durable goods also remained down year-on-year. Food prices were similar to those in the same period of last year. Price growth in services and semi-durable goods strengthened slightly, but remained modest. Export competitiveness improved further. Last year's improvement in cost competitiveness was related to the decline in the exchange rate of the euro and relative unit labour costs. Slovenia offset the loss in cost competitiveness relative to the euro area from the first year of the crisis. The bulk of improvement stemmed from the tradable sector, notably manufacturing. The improvement in price competitiveness in the first quarter was due to a further decline in relative prices. The volume of domestic non-banking sector loans continued to fall in the first quarter; the maturity structure of deposits deteriorated further. The decline in the volume of loans deepened slightly in the last 12 months, mainly as a consequence of the liquidation of two smaller banks. Corporate and NFI deleveraging abroad rose slightly in the last few months owing to higher net repayments of long-term loans. The decline in banks' foreign liabilities was larger than in the same period last year, with foreign deposits and bonds also decreasing alongside loan repayments. Lower government deposits and small inflows of household deposits slowed the growth of domestic non-banking sector deposits. In particular overnight deposits rose more visibly. The general government deficit on a cash basis in the first two months was half lower than one year before owing to higher revenue and lower expenditure. The higher general government revenue was attributable not only to higher inflows of social contributions and funds from the EU budget (related to the previous financial perspective), but also to higher tax revenues, but their growth was mainly a consequence of discrepancies in recording their flows in certain months. General government expenditure was down primarily due to the beginning of the implementation of the new financial perspective of the EU (lower expenditure on investment and subsidies and lower payments into the EU budget). 4 Slovenian Economic Mirror, No. 3/2016 In the spotlight According to the EC's forecast, this year's GDP growth in the euro area will also be mainly driven by private consumption. Households Government Gross fixed capital formation Changes in inventories and valuables £ Net exports —«—GDP (right axis) ct 0.5 CL o Source: EC. 2016 2017 Forecast 2.0 1.5 °E -C 1.0 Ï o CT 0.5 rö u cd 0.0 -0.5 -1.0 Growth prospects at the beginning of the second quarter are favourable for most activities in Slovenia. - Manufacturing Service activities ----Retail trade -----Construction rn20 c °-30 -50 -60 Source: SURS; calculations by IMAD. 30 20 n 2.5 2.5 2.0 0 1.5 -10 1.0 0.0 -0.5 -1.0 The prospects for employment growth also remain favourable for most sectors in Slovenia. 20 - Industry Trade ----Construction ----Services Source: Eurostat; calculations by IMAD. Earnings in the private sector rose notably in the last four months due to good business performance in the previous year; earnings in the general government remain high. ----Private sector -Public sector ------- -of which the general government ^ ----of which public corporations 115 CT c ■E > -a ° s £ 100 /- r"' ........."J.......... y---- / . w ' 7 A / \>---w / \ / *** * — ------ Source: SURS; calculations by IMAD. Slovenia offset the loss in cost competitiveness relative to the euro area from the first years of the crisis. ^^ RULC SI ^^ RULC EA -Labour productivity SI* -Labour productivity EA* ----Compensation per employee SI* ---Compensation per employee EA* CT 110 | 108 ro Cg 106 c g 104 E 102 cu i 100 f 98 g 96 £ 94 o 8 92 Source: Eurostat; calculations by IMAD. Note: *in real terms, GDP deflator. The lower general government deficit was mainly impacted by the transition to the new financial perspective of the EU. ■ General government balance ■ Primary general government balance 200 0 -200 -400 -600 E c -800 JE -1,000 -1,200 -1,400 -1,600 -1,800 2011 2012 2013 2014 2015 Jan-Feb Jan-Feb Source: MF, Bulletin of Government Finance; calculations by16 IMAD. 110 current economic trends 7 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends International environment Figure 1: Contributions to GDP growth in the euro area, by component Households Government Gross fixed capital formation Changes in inventories and valuables £ Net exports | —«—GDP (right axis) 5 -3 0 oi 2010 2011 2012 2013 2014 2015 2016 2017 r „ Forecast Source: EC. In the first quarter GDP in the euro area rose further; the EC projects that GDP growth in 2016 will be similar to last year. According to Eurostat's preliminary flash estimate, GDP in the euro area was up by 0.6% (seasonally adjusted) in the first quarter of 2016 and by 1.6% compared with the first quarter of the previous year. In its latest forecast, the EC did not change significantly its expectations about GDP growth in the euro area in 2016 (1.6%; in February 1.7%) and 2017 (1.8%; in February 1.9%). Growth will continue to be driven by the recovery in domestic demand. The risks to the forecast remain high. They are related to the possibility of weaker growth of the global economy and trade (with a further moderation of growth in emerging economies, particularly China). 2 2 0 Figure 2: The ECB Euro Area Bank Lending Survey -Credit standards for loans to enterpr. over the past 3-m. (left axis) ----Credit standards for loans to enterpr. over the next 3-m. (left axis) -Demand for loans to enterprises over the past 3 months (rigth axis) indicates an improvement. In the first quarter, lending conditions for enterprises and consumer loans in the euro area improved further. The main factor behind the improvement remained competition between banks. The indicators of the ECB survey show an improvement in credit standards for all loan maturities and enterprise sizes and for consumer loans. The credit standards on housing loans have tightened mainly owing to the implementation of the EU mortgage credit directive, which requires an in-debt assessment of the borrower's creditworthiness. The demand for all types of loans is also expected to increase in the second quarter, which could additionally boost credit recovery. The net flow of loans to enterprises and households was positive in the first quarter. Table 1: Indicators related to the international environment average change, in %* 2015 III 16 IV 16 IV 16/III 16 IV 16/IV 15 I-IV 16/I-IV 15 Brent USD, per barrel 52.35 38.21 41.58 8.8 -30.1 -35.5 Brent EUR, per barrel 48.33 36.47 38.20 4.8 -32.5 -35.4 EUR/USD 1.110 1.110 1.134 2.2 5.2 -0.4 3-month EURIBOR, in % -0.020 -0.229 -0.249 -2.1 -25.4 -23.8 Source: EIA, ECB, EMMI Euribor; calculations by IMAD. Note: * in Euribor change in basis points. 8 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Economic developments in Slovenia Figure 3: Short-term indicators of economic activity in Slovenia - Merchandise exports Industrial produciton in manufacturing Value of construction put in place ■ Turnover in retail trade Most short-term indicators of economic activity in Slovenia improved further at the beginning of the year. Merchandise exports and production volume in manufacturing increased the most amid positive developments abroad and increased competitiveness. With the improvement in labour market conditions and the strengthening of private consumption, further growth was recorded in the trade sector and tourism-related services. Imports of consumer goods were also higher. Turnover also expanded in most other market services. In the construction sector, activity fell further, to a similarly low level as recorded in early 2013. The sentiment indicator indicates a continuation of the gradual strengthening of activity in most sectors. Source: SURS; calculations by IMAD. Table2: Selected monthly indicators of economic activity in Slovenia in % 2015 II 16/I 16 II 16/II 15 I-II 16/I-II 15 Merchandise exports, real1 4.4 1.43 10.0 6.7 Merchandise imports, real1 3.5 7.23 4.1 0.4 Services exports, nominal2 7.5 5.23 9.8 7.8 Services imports, nominal2 2.6 4.03 12.5 9.9 Industrial production, real 5.6 0.33 6.54 6.64 -manufacturing 6.0 0.83 8.64 8.24 Construction -value of construction put in place, real -25.2 -4.13 -30.7 -27.6 Real turnover in retail trade 1.1 -1.23 -1.24 0.54 Nominal turnover in market services (without trade) 4.5 0.03 3.34 4.14 Sources: BoS, Eurostat, SURS; calculations by IMAD. Notes: 'External trade statistics; deflated by IMAD, 2balance of payments statistics, Seasonally adjusted, 4working-day adjusted data. Figure 4: Merchandise trade - real -Merchandise exports -Merchandise imports 120 s_ > n 115 t E 110 o o 105 m o rN !?100 X 0! S_ 95 ■ 90 O fl> 85 < o ro 01 i^n 80 J^J f A j \ / V Source: SURS; calculatons by IMAD. Growth in merchandise exports strengthened in the first two months; imports1 also rose after hovering at the achieved level for a long period. Exports of most products increased at the beginning of the year, particularly motor vehicles and metal and chemical industry products. Import growth in the last few months was largely a consequence of higher imports of consumer goods. 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. Detailed data on the structure of merchandise trade for February 2016 are not available yet. 9 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 5: Trade in services - nominal -Exports of services -Imports of services / In February services exports continued to increase; imports were also strengthening over the last few months.2 The year-on-year growth of exports in the first two months was underpinned by higher exports of transport services, higher spending of foreign tourists and exports of telecommunication and computer services. The year-on-year growth of imports mainly stemmed from higher imports of technical services, services related to trade, administrative and support services, financial services and transport services. Source: BS; calculators by IMAD. Figure 6: Production volume in manufacturing according to technology intensity ^^m 2015/2014 ^mm Jan-Feb 2016/Jan-Feb 2015 ----Ave. tech.-intensity 2015/2014 -Ave. tech.-intensity Jan-Feb 2016/Jan-Feb 2015 Low-tech Industries Source: SURS; calcu Medium-low-tech ations by IMAD. Production volume in manufacturing rose significantly at the beginning of the year. In February it increased further in all categories of technological intensity, particularly in medium-low-technology industries. The majority of these industries exceeded last year's levels; production was also up year-on-year in most other sectors. After last year's strong growth, only the production of transport equipment recorded a significant decline, but, similar to the production of most other technologically more intensive industries, it exceeded the levels of 2008. 20 0 10 Figure 7: Value of construction put in place Total ----Residential buildings -Non-residential buildings ----Civil-engineering works The value of construction put in place dropped strongly at the beginning of the year. In the last twelve months, construction activity was dwindling. As a result of lower government investment, the value of construction put in place for civil-engineering works fell notably. Since mid-2014 only the construction of residential buildings had been rising, but remained close to the lowest levels recorded in the last years. Source: SURS; calculations by IMAD. 2 According to the balance of payments statistics. 80 60 40 20 0 10 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 8: Turnover in retail trade ------The sale of automotive fuels - -The sale of non-food products The sale of food products I" f 85 80 U! LTt VO Source: SURS; calculations by IMAD. At the beginning of the year, turnover rose across most trade segments, the most in the sale of motor vehicles and nonfood products, where the sales of household appliances, computer and telecommunication equipment, furniture, textile, clothing and footwear increased in particular. After stagnating at the end of last year, turnover also rose in the sale of food products and wholesale trade, while it continued to drop in the sale of automotive fuels. In the first two months, the largest year-on-year increase, of nearly a quarter, was recorded for turnover in the sale of motor vehicles, owing to a surge in the sale of new passenger and freight vehicles.3 95 90 Figure 9: 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) c ----Accommodation and food service activities (I) > 120 Source: SURS; calculations by IMAD. In February most market services recorded further nominal turnover growth. Turnover growth in transportation and communication services slowed in the last months. We estimate that the moderation was mainly attributable to the sales on the domestic market, as the sales on foreign markets are rising. Higher sales on the domestic market contributed to further turnover growth in legal-accounting, management-consultancy and employment services and in accommodation and food service activities.4 Figure 10: Road and railway freight transport -Railway ---Road - exports and imports Road - abroad ----Road - national O O O O O Source: SURS; calculations by IMAD. Growth in the volume of road freight transport slowed last year. International road transport recorded a significant increase, particularly transport abroad, the segment that is the most dependent on foreign demand. The volume of national transport, which is more related to domestic factors, increased only slightly amid modest activity in some sectors (particularly construction). In the year as a whole, road freight transport rose by a tenth. Railway freight transport maintained the achieved level after the moderation of the strong growth of export orders for transport services. 3 After last year's increase of around 10%, the number of first passenger car registrations was up 12.6% year-on-year in the first two months; the number of new goods motor vehicles and trailers was up 43.1% and 24.2%, respectively. 4 A significant contributing factor to this sector's turnover growth is otherwise also a larger number of foreign tourists. 11 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 11: Selected indicators of household consumption -Turnover in stores selling household applian., audio&video record. ------Turnover in stores selling furniture and construction material -Number of first passenger car registrations used by individuals 90 60 50 V Ay Household spending rose further at the beginning of the year. With stronger growth in the net wage bill, purchases of durable and semi-durable goods increased further. Purchases of non-durable goods had also risen since the end of last year. Expenditure5 on tourism-related services continued to grow. Imports of consumer goods were also up Source: Ministry of Infrastructure, SURS; calculations by IMAD. Figure 12: Business trends 30 20 10 0 -10 cu eg 2-20 cu "-30 -40 -50 -60 Economic sentiment -Manufacturing ■ Retail trade —•— Service activ. Construction ----Consumers* After the deterioration in the first quarter, confidence indicators improved in most activities and among consumers. rN rN rn m lo LO vo Source: SURS; calculations by IMAD. Note: * Owing to methodological changes, since January 2016 data on consumer confidence are not comparable with previous data. Figure 13: Legal entities with outstanding matured liabilities for more than five consecutive days in a month and the average daily amounts of their outstanding matured liabilities Average no. of legal entities with outstanding matured liabilities (left axis) -Average daily amount of outstanding matured liabilities, EUR m 8000 right axis) In the first quarter, solvency improved further. The number of non-payers and the amount of outstanding liabilities of legal entities and sole proprietors declined year-on-year and payment delays shortened. The average number of sole proprietors with outstanding liabilities for more than 5 days in a month was the lowest since 2010. Long-term outstanding liabilities6 remained high, accounting for 75% of all outstanding liabilities of legal entities and 79% of all outstanding liabilities of sole proprietors. The mutual indebtedness of business entities decreased as a result of set-offs. Together with the round of compulsory and voluntary set-offs that took place in March, the mutual indebtedness of business entities declined by EUR 2.7 billion in the period since April 2011.7 a a a Source: AJPES 5 After the high rises in the second half of last year, growth in expenditure on private trips made by Slovenian residents abroad (imports of travel) slowed to 0.4% in the first two months of 2016. The number of domestic tourist overnight stays was up 4.3% year-on-year. 6 Liabilities outstanding for more than one year. 7 ZPreZP-1 (Official Gazette of the RS, No. 57/2012, from 27 July 2012), which took effect on 28 July 2012. 110 80 70 40 12 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 14: Bankruptcy filings against companies and sole proprietors Legal entities (left axis) 50 0 - Sole proprietors (right axis) 70 V rN rn 60 50 40 30 20 LO VO aaaaaaaa Source: AJPES, Business Register of Slovenia. Note: Until 2012 data for companies also include co-operatives. The number of bankruptcy proceedings filed against legal entities and sole proprietors has been rising since the middle of 2015; the number of personal bankruptcy filings remains high. The most bankruptcy proceedings against legal entities and sole proprietors were again filed in distributive trades and construction and, in sole proprietors, in accommodation and food service activities. After the adoption of the legislative amendment that exempted all bankruptcy petitioners from depositing an advance,8 personal bankruptcy filings surged.9 In the first quarter of 2016, 1,073 personal bankruptcies were filed, but the amount of reported claims was more than half lower than in the same period last year. 10 0 8 Act Amending the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (ZFPPIPP), Official Gazette of the RS, No. 47/2013 from 31 May 2013, according to which the debtor no longer has to deposit an advance to cover the initial costs of bankruptcy proceedings. 9 From around 880 in 2013 to more than 4000 in 2014 and 2015. 13 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Labour market Figure 15: Employed persons by activity 0.0 -1.5 Manufacturing (C) • Market services (G-N) -Construction (F) ----Public services (O-Q) rs rs m m s = s = s = IS 3 Ii = Ii Source: SURS; calculations by IMAD. At the beginning of the year, the number of employed persons10 continued to grow. Reflecting activity growth, in February their number rose further in most private sector activities, notably manufacturing, the sector to which most of the employment services workers were assigned11 according to our estimate. It also increased further in most market services, where the total number of employed exceeded the number recorded before the crisis. Year-on-year, the number of employed was up particularly in medium-low technology manufacturing and transportation, accommodation and food service activities, and distributive trades. In public services it was up year-on-year particularly in the health sector; in education, it rose the most in pre-school and basic education, also owing to larger generations of children. 2 Figure 16: Employed according to SRE and registered unemployed 800 780 -Employed according to SRE (left axis) Registered unemployed (right axis) ¡15 760 740 720 Source: SURS, ESS; calculations by IMAD. In April registered unemployment continued to decline. The more notable decline in the last months was mainly attributable to the stronger outflow into employment, which was also up year-on-year in the first four months of 2016. The inflow into unemployment due to job loss and the inflow of first-time jobseekers were also smaller. At the end of April, the number of unemployed was down 8.2% year-on-year; the number of registered unemployed totalled 105,453. Table 3: Indicators of labour market trends change, in % 2015 II 16/I 16 II 16/II 15 I-II 16/I-II 15 Persons in formal employment2 0.9 0.11 0.6 0.5 Registered unemployed -6.1 -1.11 -5.3 -5.1 Average nominal gross wage 0.7 0.11 3.5 2.3 - private sector 0.5 3.01 3.6 2.0 - public sector 1.2 0.51 3.5 2.8 -of which general government 1.0 0.01 4.2 4.3 of which public corporations 1.5 1.21 1.8 -0.6 2015 II 15 I 16 II 16 Rate of registered unemployment (in %), seasonally adjusted 12.3 12.5 12.0 11.9 Sources: ESS. SURS; calculations by IMAD. Note: Seasonally adjusted, 2 Persons in paid employment, self-employed persons and farmers. 10 According to the Statistical Register of Employment; these are persons in paid employment and self-employed persons except farmers. 11 The year-on-year growth of the number of employment services workers is otherwise slowing; their contribution to total employment growth is also significantly lower year-on-year. In our estimation, this is a consequence of increased direct hiring amid rising confidence in the economic recovery. 14 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 17: Average gross earnings per employee -Gross earnings per empoloyee ----Private sector -Public sector ------- - of which, general government sector 120 115 ---- of which, public corporations --V" r-^l 100 After stagnating for one and a half years, average gross earnings in the private sector rose significantly in the last four months under the impact of past business performance. After two years of modest growth, earnings in the public sector continued to rise mainly owing to growth in public corporations; in the general government, they maintained the high level reached at the end of the year as a result of promotions and overtime and extraordinary payments related to the increased inflows of refugees and migrants. In the first two months, private and public sector earnings recorded the highest year-on-year growth in five years. S110 Source: SURS; calculations by IMAD. 15 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Prices Figure 18: Inflation in Slovenia and in the euro area 4.0 3.5 n 3.0 c 2.5 JI 2.0 0 1 5 Ol 1 0 (1J C 0.5 J 0.0 m -0.5 -1.0 -1.5 -Slovenia HICP ■ Slovenia HICP - core inflation -Euro area HICP ■ Euro area HICP - core inflation ,sjy j t*\ A i vi \ Y - I / In April prices remained down year-on-year primarily owing to lower oil prices on global markets. In the absence of cost pressures, prices of durable goods stayed lower year-on-year, while food prices were similar to those in the same period last year. The growth of services and semi-durable goods prices strengthened slightly in April, but remained modest. Prices in the euro area were also down year-on-year in April. With lower energy prices in year-on-year terms, this was also attributable to the lower growth of services prices compared to previous months. Prices of food and semi-durable and durable goods remained up year-on-year. Source: Eurostat. Note: Core inflation excluding energy and unprocessed food. Figure 19: Industrial producer prices and import prices -PPI (domestic market) ------PPI (foreign market) -Import prices Amid lower commodity prices on world markets, the year-on-year declines in import prices and industrial producer prices deepened at the beginning of the year. Table 4: Consumer price growth in % 2015 IV 16/III 16 IV 16/IV 15 Total -0.5 0.4 -0.6 Food 1.5 -0.1 -0.3 Fuels and energy -6.7 1.2 0.0 Services 0.7 -0.2 0.0 Other1 -0.1 -1.8 -1.4 Total excluding food and energy 0.3 0.4 0.5 Core inflation - trimmean2 0.0 0.0 0.2 Administered prices3 -9.8 2.4 -10.0 Tax impact - contribution in percentage points -0.2 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. 3 The calculation includes prices formulated on the basis of price mechanisms according to the Price Control Act, and prices under direct government control (oil derivatives, railway transport, school books, tolls). 16 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 20: Real effective exchange rate deflated by the HICP and ULC -REER HICP ----Relative HICP----NEER ----Relative ULC -REER ULC 112 110 108 o S 106 II rs 8 104 (N X -S 102 _c 100 98 96 94 a a a a a Source: ECB; calculations by IMAD. Figure 21: Real effective exchange rates of euro area countries deflated by relative ULC, 2015 ■ NEER «Relative ULC »REER ULC Price competitiveness remained favourable for exporters in the first quarter. The real effective exchange rate deflated by the relative12 HICP rose slightly owing to the appreciation of the euro against the currencies of most main trading partners, but its real value remained close to last year's lowest levels since Slovenia's entry into the ERMII in 2004 or the adoption of the euro in 2007. At the year-on-year level, price competitiveness improved further, reflecting the decline in relative prices, one of the largest in the euro area. Last year cost competitiveness improved further. The improvement was attributable mainly to the decline in the exchange rate of the euro and partly to relative unit labour costs. In terms of cost competitiveness gains as measured by the real effective exchange rate, Slovenia ranked in the middle of countries in the euro area. The decline in the nominal effective exchange rate was smaller than in most other euro area countries because of the geographical structure of Slovenia's trade.13 In contrast, the decline in relative costs was one of the largest in the euro area. Source: ECB; calculations by IMAD. Figure 22: Real unit labour costs, Slovenia and the euro area average ^^rn RULC SI ^^rn RULC EA -Productivity Slovenia* - Productivity EA* S 110 ro ¡J 108 I 106 I 104 ro g- 102 o 100 o £ 98 o S 96 u Ü 94 92 ----Compensation per employee Slovenia* .... Compensation per employee EA* oooooooo Source: Eurostat; calculators by IMAD. Note: *real, GDP deflator. Last year Slovenia offset the loss in cost competitiveness relative to the euro area experienced in the first years of the crisis. This was a consequence of the relatively faster growth of labour productivity in the last few years. The total increase in real unit costs since the beginning of the crisis was still slightly higher than the EU average, but the gap narrowed. 12 In Slovenia, compared with those in the trading partners. 13 As Slovenia has an above-average share of trade with the euro area, it is relatively less susceptible to the volatility of the euro. Moreover, this year the euro has mainly been losing value against the currencies of those trading partners that account for relatively smaller shares in Slovenia's trade outside the euro area (US, United Kingdom, Asian countries), while being stable against the currencies of those with relatively larger shares (Croatia, Hungary, the Czech Republic, Poland). 17 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Figure 23: Real unit labour costs in the tradable sector and manufacturing, Slovenia and the euro area -Tradable sector, Slovenia ----Manufacturing, Slovenia 114 -Tradable sector, EA ----Manufacturing, EA 112 110 S 98 96 /* \ / 1 „ ' ' / V > \ \ - - A \ i\ 1 ' • '/ II/ .......v.......... * \ / ' III / III / 'Hi \ \ Â ** \ ' ! \ s \ X \ .........\"T..... \ \ V \ x Last year, too, the improvement in cost competitiveness mainly stemmed from the tradable sector,'4 particularly manufacturing, but also distributive trades, accommodation and food service activities and transportation. The improvement was a consequence of growth in value added amid a more moderate increase in employment and modest wage growth.'5 In manufacturing the level of real unit labour costs had already been lower than in 2007 since the first quarter of 2015. Their position relative to the pre-crisis period was also better in comparison with the euro area and the EU. a a a a a a Source: Eurostat; calculatons by IMAD. Table5: Indicators of price and cost competitiveness Year-on-year growth, in % 2014 2015 q4 14 q1 15 q2 15 q3 15 q4 15 Effective exchange rate1 Nominal 0.3 -2.8 -1.0 -3.1 -3.7 -2.4 -1.9 Real, deflator HICP -0.1 -3.8 -1.4 -3.6 -4.8 -3.4 -3.1 Real, deflator ULC -1.8 -4.0 -2.1 -4.9 -4.5 -3.7 -3.0 Unit labour costs, ecnomy and components Nominal unit labour costs -1.3 -0.6 -0.3 -0.8 -0.2 -1.0 -0.5 Compensation of employees per employee, nominal 1.1 0.8 1.4 0.5 0.9 0.3 1.5 Labour productivity, real 2.5 1.4 1.8 1.3 1.1 1.3 2.0 Real unit labour costs -2.1 -1.1 -0.9 -1.3 -0.4 -1.1 -1.5 Labour productivity, nominal 3.3 1.9 2.4 1.7 1.3 1.4 3.1 Source: SURS; calculations by IMAD. Note: 1 Against 37 trading partners, according to ECB data. 14 The tradable sector includes industry (B-E), wholesale and retail trade, transport, accommodation and food service activities (G-I), information and communication activities (J), and agriculture (A). 15 In contrast to the 2010-2013 period, when cost competitiveness gains were mainly achieved by reducing employment and moderating the growth of wages. 18 Slovenian Economic Mirror, No. 2/2016 Current Economic Trends Balance of payments Figure 24: Components of the current account of the balance of payments Merchandise trade Services trade Primary income Secondary income E 5,000 cc D c 4,000 2 3,000 > ro CT 2,000 u in rN -2,000 ^^rNrNmm^r^ruiLovo