Slovenian economic mirror July-August 2009, No. 7-8. Vol. XV Slovenian Economic Mirror ISSN 1318-3826 No. 7-8 / Vol. XV / 2009 Publisher: IMAD, Ljubljana, Gregorčičeva 27 Director: Boštjan Vasle, MSc Editor in Chief: Jure Brložnik, MA Matevž Hribernik (International Environment); Barbara Ferk, MSc, Janez Kušar, Ivo Lavrač, PhD, Urška Lušina, Jože Markič, PhD, Tina Nenadič, Jure Povšnar, Mojca Koprivnikar Šušteršič (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); Mojca Vendramin, Miha Trošt (Formation and Control of Prices of Public Utility Services in Slovenia); Tanja Čelebič, MSc (Educational Structure of the Adult Population in Slovenia); Mateja Kovač, MSc (International Trade in Agro-food Products). Editorial Board: Lidija Apohal Vučkovič, Marijana Bednaš, MSc, Alenka Kajzer, PhD, Rotija Kmet Zupančič, MSc, Janez Kušar, Boštjan Vasle, MSc Translator: Marija Kavčič Language Editor: Amidas d.o.o. Data Preparation and Graphs: Bibijana Cirman Naglič, Marjeta Žigman Concept and Design: Katja Korinšek, Pristop DTP: Bibijana Cirman Naglič Print: Tiskarna Present d.o.o. 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.......................................................................................................................................................18 Financial Markets...................................................................................................................................................................................20 Public Finance..........................................................................................................................................................................................22 Selected Topics..............................................................................................................................................25 Formation and Control of Prices of Public Utility Services in Slovenia ...............................................................................27 Educational Structure of the Adult Population in Slovenia.....................................................................................................28 International Trade in Agro-Food Products....................................................................................................................................30 Statistical Appendix......................................................................................................................................33 Boxes Box 1: Economic Growth in the Second Quarter of 2009..........................................................................................9 Box 2: Movements on the Real Estate Market...........................................................................................................12 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, July-August 2009 3 In the Spotlight In the spotlight After two quarters of negative growth, Slovenia's GDP increased by 0.7% (seasonally adjusted) in the second quarter of 2009 relative to the first, while the y-o-y drop in activity remained high (-9.3%) due to the negative effects of the economic and financial crisis. The international economic and financial crisis had a particularly great negative impact on exports, which dropped by 21.3% compared with the same period last year, but given an even greater decline in imports (-24.8%), the contribution of net exports to GDP growth was again positive (3.1 p.p.). Another key factor in the GDP decline is lower fixed capital formation (-27.3%), as a result of lower capacity utilisation following the decline in orders and in part also of tighter financing conditions and a slowing cycle in infrastructure investment. Similar to the first quarter, inventories made a significant negative contribution to GDP growth (-3.7 p.p.). Household consumption declined for the first time y-o-y (-2.6%), and among consumption aggregates only government consumption, as expected, recorded an increase. On the production side the greatest contribution to the y-o-y decline in value added again came from manufacturing, while a strong decline was also observed in construction and market services which are more closely linked to manufacturing and construction or household consumption and tourism. Labour market indicators deteriorated further in the second quarter of the year, given that the number of persons in employment continues to drop and that the number of registered unemployed in August was almost a half higher than last year. The number of employed persons dropped by 0.9% in the second quarter compared with the first, being 2.1% lower y-o-y. According to the Labour Force Survey, the number of persons in employment dropped by 0.9% in the second quarter relative to the same period last year. The survey unemployment rate increased as well (to 5.6%). The number of registered unemployed totalled 88,106 in August, 45.2% more than in the previous August, while the registered unemployment rate climbed to 9.1% in June. The average gross wage rose somewhat in June. The gap between wage rises in the private and public sectors narrowed, but remains high. The gross wage per employee increased by a nominal 1.0% in June relative to May, and was 4.7% higher y-o-y. In the private sector, the gross wage was 2.3% higher than in the previous June, in the public sector by 9.9%. In the second quarter as a whole, the average gross wage was 4.6% higher in nominal terms than in the same period last year. Consumer prices remained unchanged in August, while their y-o-y growth increased after deflation in July, but the price level remained at the same level as in the previous August. Low inflation in Slovenia and in the euro area as a whole, which posted deflation y-o-y in August for the third month in a row (-0.2%), is still mainly due to the »base effect« linked to the prices of oil and food and to low economic activity. In June, the current account of the balance of payments ran a surplus (EUR 133.2 m) for the third month in a row, and the current account balance was positive in the first quarter for the first time in three years. The current account surplus was largely a result of movements in the balance of merchandise trade, which even posted a surplus in the second quarter of the year. The same holds true for current transfers. The deficit in factor incomes and the surplus in the services balance also declined. In the second quarter, net capital outflow totalled EUR 146.8 m and was due to the net outflow from the private sector, which was higher than the net inflow to the general government and the BS. The net lending activity of domestic banks strengthened somewhat in July, totalling EUR 217.1 m, close to a third of this year's total net flows of loans, but remains far more modest than in previous years. Lending activity picked up mainly due to increased household borrowing, partly for seasonal reasons, while the net flow of corporate and NFI loans was positive as well (EUR 50.7 m), though still low. The somewhat higher lending activity in July was probably also due to the fact that a significant portion of government deposits was transferred among long-term deposits. In the first seven months of this year, net corporate loans with domestic banks accounted only for 10% and household loans for less than a third of the amount posted in the same period last year. The gap between general government revenue and expenditure is increasingly wider; absorption from the EU budget has improved in comparison with that in the previous year. According to non-consolidated data, general government revenue dropped by 14.2 % y-o-y in the first seven months of the year, while expenditure rose by 12.3 %. The deficit has thus already climbed to EUR 946 m. Similar movements are also recorded for the health fund and local budgets, while the pension fund is balanced owing to a high transfer from the state budget. Absorption Slovenian Economic Mirror, July-August 2009 4 In the Spotlight from the EU budget has improved in recent months, and Slovenia's net budgetary position against the EU budget was positive at the end of July (EUR 21.4 m), which may also be a result of measures adopted in this area in previous months. current economic trends Slovenian Economic Mirror, July-August 2009 7 Current Economic Trends International environment A year after the onset of the international economic and financial crisis, the decline slowed in the second quarter of this year. Relative to the previous quarter, GDP in the euro area declined in the second quarter of 2009 for the fifth time in a row, yet this time by a mere 0.1%, largely as a result of slight growth in Germany and France (0.3%). GDP was 4.7% lower year-on-year (in the first quarter by 4.9%). Half of the y-o-y GDP decline came from a drop in investment, twice as much as in the first quarter from the change in inventories (0.9%), while the contribution of international trade was once again negative (-1.4 p.p.). GDP fell for the fourth consecutive quarter also in the US (-0.3%), albeit far less notably than in previous quarters, and was 3.9% lower y-o-y. International institutions estimate that the crisis, which most of institutions had underestimated in their spring reports, bottomed out in the first half of 2009, and expect the situation to stabilise in the second part of the year. Short-term indicators of economic activity in the euro area continue to drop, albeit at a slower pace than at the end of last year. Confidence indicators in the euro area have already been improving for several months, particularly those of expectations and consumer confidence, while short-term indicators of economic activity have not changed significantly as yet. Industrial production continues to fall (a monthly drop of -0.6% in July, -17.0% y-o-y), but at a notably slower pace compared to the period between last December and April 2009. Following significant drops at the beginning of this year, turnover in retail trade, down 0.2% in June (-2.4% y-o-y), is falling at a slower rate as well, and the value of construction put in place continues to drop (-1.1%, -8.8% y-o-y). In the US, the fall in short-term indicators is slowing, and confidence indicators, as in Europe, suggest that the situation is set to improve. Industrial production posted monthly growth in July (0.6%), yet its volume was 13.1% lower y-o-y. The unemployment rate continues to increase in both the euro area and the US (in July, 9.5% and 9.4%, Figure 1: Economic growth in the EU-27 Figure 2: Short-term indicators of economic activity in the euro area -Industrial production -Construction -Retail trade .........Economic sentiment in EMU (right axis) 120 > \ \ \ Source: Eurostat. Note: *data for these countries are not available yet. Source: Eurostat; calculations by IMAD. Table 1: Economic growth forecasts by international institutions 2009 2010 EC Apr 09 OECD Jun 09 IMF Jul 09 CONS Aug 09 EC Apr 09 OECD Jun 09 IMF Jul 09 CONS Aug 09 EMU -4.0 -4.8 -4.8 -4.3 -0.1 0.0 -0.3 0.6 EU -4.0 N/A -4.7 -4.3 -0.1 N/A -0.1 0.3 DE -5.4 -6.1 -6.2 -5.8 0.3 0.2 -0.6 0.7 IT -4.4 -5.5 -5.1 -5.1 0.1 0.4 -0.1 0.3 AT -4.0 -4.3 N/A -3.9 -0.1 -0.1 N/A -0.5 FR -3.0 -3.0 -3.0 -2.8 -0.2 0.2 0.4 0.4 UK -3.8 -4.3 -4.2 -4.3 0.1 0.0 0.2 0.9 US -2.9 -2.8 -2.6 -2.6 0.9 0.9 0.8 2.3 Source: European Commission Spring Forecast (April 2009). OECD Economic Outlook (June 2009). IMF World Economic Outlook update (July 2009). Consensus Forecasts (August 2009). 115 100 90 ro 80 95 70 90 60 85 50 Slovenian Economic Mirror, July-August 2009 8 Current Economic Trends respectively). This indicator was rising rapidly, particularly in the first months of the year. the Japanese yen (1.67%), Swiss franc (0.22%) and British pound sterling (0.20%). The signs of recovery in the international environment, which mainly reflect the first effects of extensive measures in response to the crisis, are associated with great risks. In addition to government measures, individual central banks continue to take steps to revive the financial systems, and the situation in international financial markets is improving. The recovery of the economy is favourably influenced in particular by measures stimulating domestic consumption, e.g. subsidies for new car purchases. In Germany alone, EUR 1.5 bn was allocated for this purpose, while together with similar schemes in the EU, the bailout packages amount to more than EUR 2.5 bn. Optimistic news regarding the possibilities of economic recovery in developed countries was the main driver of oil and non-oil commodity price rises in the summer months. In the wake of a small drop in July, prices of Brent crude oil increased by 12.5% in August (to an average of USD 72.5 a barrel), while - particularly due to rebounding demand in developing countries - prices of other commodities are rising as well (IMF commodity index growth of 20.0% relative to January 2009), over the last month especially prices of metals (3.1%). Figure 3: Movements of the price of Brent crude oil 140 130 120 110 100 i 90 ; 80 70 60 50 40 The main central banks kept their key interest rates unchanged during the summer months. The value of the euro appreciated against the US dollar in the last two months. Interest rates in interbank markets continued to decline. The value of the three-month EURIBOR declined by 0.12 p.p. in August relative to July, totalling 0.860 on average for the month as a whole. The value of the euro appreciated against the US dollar in July and August (1.28% in August). The euro also gained value against Economic activity in Slovenia Over the last few months, monthly movements of short-term indicators of economic activity in Slovenia suggested a slower GDP decline in the second quarter, while y-o-y, the value of the five main indicators was approximately a fifth lower. The seasonally adjusted value of nominal merchandise exports increased in June for the fourth consecutive month relative to the month before, and the volume of industrial production in manufacturing for the second, by our estimate, suggesting that economic activity in Slovenia has temporarily ceased to decline. Despite this slight growth, it is still too early to expect recovery. After increasing in the first three months of this year, the value of construction put in place dropped again in the second quarter, but the decline slowed in June and July. Distributive trades and hotels and restaurants posted fairly volatile turnover movements, but also continued Figure 4: Values of short-term indicators of economic activity in Slovenia -Merchandise exports (nom.) -Industrial production in manufact. ---------Value of construction put in place -Turnover in trade ■■ Turnover in hotels and restaurants 180 0 2 170 II 1 160 §150 Ï5 .E 140 "U S 130 n ¥ 120 I110 0 IS 100 01 90 80 Sentiment indicator (right axis) 24 / i '"v «..V \ "-y i M J/ /JA Os) 1 1 A il » . 20 16 12 a 8 f 4 = c 0 8 S -4 S -8 ™ -12§ -16l -20 -24 -28 VO CO CO CO CO Ol Ol Ol Source: SORS; calculations by IMAD. to fall. Current stabilisation of the situation is reflected by the business climate indicator, which has increased slightly since April, when it dropped to its historic low (January 2000). The value of merchandise trade dropped even further in the second quarter of the year. The good news is that merchandise exports increased (3.0%) relative to the previous quarter. The decline in imports was smaller (-1.5%).1 The value of merchandise trade was lower y-o-y 1 According to the external trade statistics. 200 70 30 Slovenian Economic Mirror, July-August 2009 9 Current Economic Trends Box 1: Economic growth in the second quarter of 2009 After two years of decline, GDP increased by 0.7% in the second quarter relative to the first (seasonally adjusted), while still posting a high y-o-y decline (-9.3%) due to the negative effects of the economic and financial crisis. Data for the second quarter indicate a gradual stabilisation of economic activity, albeit at a fairly low level. The GDP decline remained high y-o-y, even somewhat exceeding the y-o-y drop in the first quarter of the year (-8.3%). GDP thus declined in real terms by 8.8% in the first half of the year, which is more than forecast in the spring. Owing to Slovenia's strong integration in international flows, the negative consequences of the crisis mainly affected the volume of international trade, which dropped by nearly a fifth y-o-y, and investment activity. The net exports made a positive contribution to economic growth (3.1 p.p.), as imports (-24.8%) dropped more than exports (-21.3%). In addition to lower imports of intermediate products related to the production decline in the industry, this was also a result of a significant contraction in investment, lower private consumption and adjustment of inventory levels. The high real drop in fixed capital formation (-27.3%) was due to low capacity utilisation in the wake of declining foreign orders, and in part also to tighter financing conditions and the slowing investment cycle in construction. For the third quarter in a row, inventories made a significant negative contribution to GDP growth (-3.7 p.p.). Uncertain economic conditions and notably worse conditions on the labour market contributed to the first drop in private consumption (-2.6%) in nine years, so that, as expected, among consumption aggregates only government consumption recorded an increase. Among individual sectors, in the second quarter the largest contribution to the drop in GDP again came from manufacturing, while growth was only recorded for financial intermediation and public services. In the second quarter, the y-o-y decline in manufacturing (-22.0%) was even slightly higher than in the first. The decline in value added in construction was relatively high (-13.4%) as well, as was the drop in market services which are more closely linked to manufacturing and construction (transportation, business services, wholesale trade) or household consumption and tourism (retail trade and hotels and restaurants). Looking at market services, value added again increased only in financial intermediation, which by our estimate is mainly attributable to significantly lower interest rates, given that the movements of nominal indicators were negative in this period. In y-o-y terms, however, real value added increased in all public services, most notably in health care. Figure 5: Expenditure structure of GDP growth Figure 6: Production structure of GDP growth I Private consumption Gross fixed capital formation I Exports of goods and services - GDP real growth (right axis) Government consumption Changes in inventories and valuables Imports of goods and services 10 8 6 4 2 0 -2 -4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 07 08 09 Source: SORS. -10 -12 ■ Agriculture, Fishing (A, B) ■ Construction (F) ■ Public services (L -P) Industry (C -E) Market se rvices (G -K) I Net taxes on products Q1 07 Q2 Q3 Q4 Q1 08 Q2 Q3 Q4 Q1 09 Q2 Source: SORS. Note: see the list of acronyms. 8 6 4 2 10 Slovenian Economic Mirror, July-August 2009 Current Economic Trends Figure 7: Growth of Slovenian merchandise exports and economic growth in the EU -Merchandise exports (left axis) -GDP in EU (right axis) Table 2: Selected monthly indicators of economic activity in Slovenia 20 15 ^ 10 trwo 5 rg la 0 e0 1-5 -10 -15 -20 -3 -4 Source: SORS, Eurostat. for the third quarter in a row, amid a greater decline of imports (-33.4%) relative to exports (-24.0%). The value of Slovenian merchandise exports is at the level of average quarterly exports in 2006. According to available data on the structure of exports based on the SITC for the first five months of 2009, the largest negative contribution to total merchandise exports came from road vehicle exports and electrical appliances. The decline was mitigated somewhat by higher exports of electricity, and telecommunications and electro-acoustic equipment. On the side of imports, the largest negative contribution came from imports of road vehicles, and oil and oil products. According to seasonally adjusted data, in June exports otherwise increased slightly for the fourth month In % 2008 VI 09/ V 09 VI 09/ VI 09 I-VI 09/ I-VI 08 Exports1 4,8 6,8 -18,7 -21,7 -goods 1,3 6,1 -19,8 -23,3 -services 21,6 9,2 -14,4 -14,7 Imports1 6,4 2,7 -29,9 -27,9 -goods 5,7 2,7 -31,8 -30,2 -services 10,8 2,6 -16,9 -11,0 Industrial production -1,2 -1,0 -22,2 -21,1 -manufacturing -1,3 -0,9 -23,1 -22,4 Construction -value of construction put in place 15,7 -1,42 -15,93 -19,13 Distributive trade - turnover in distributive trade and the sale and repair of motor wehicles 10,4 0,02 -14,23 -12,03 Hotels and restaurants - turnover in hotels and restaurants -2,7 -1,12 -12,43 -10,83 Sources: BS, SORS; calculations by IMAD. Notes: 1balance of payments statistics, 2seasonally adjusted ,3working-day adjusted data. in a row. Merchandise imports were more volatile and strengthened somewhat in June, after having declined in May. Trade in services is dropping y-o-y, albeit more slowly than merchandise trade. While having still posted strong growth in the last quarter of 2008 (18.8%), services exports declined notably in the first quarter of this year (-11.6%). In the second quarter, the decline was even deeper (-17.3%). It was mainly due to lower exports of road transport and merchanting services, i.e. services related to sectors with the largest activity drop (manufacturing, construction). Similar movements were also recorded for imports of Figure 8: Geographic structure of merchandise export growth n 5 EU EU non-member Figure 9: Trade in services -Exports of services - Imports of services Source: SORS; calculations by IMAD. a a Source: BS; calculations by IMAD. 4 3 2 0 20 30 15 25 10 20 ra 10 0 5 0 -15 15 Slovenian Economic Mirror, July-August 2009 11 Current Economic Trends services, which in the second quarter were 13.8% lower y-o-y. The decline in imports was mainly due to lower imports of maritime and rail transport, and construction services. Industrial production in manufacturing declined further in the second quarter relative to the first, but the monthly data for May and June suggest that the negative movements have come to a halt. Production activity was 23.5% lower compared with the second quarter last year (working day adjusted) and 2.4% lower compared with the first quarter this year (seasonally adjusted), which is a significantly smaller decline than in the two prior quarters. Monthly data indicate improvement at the end of the quarter, as after the weak activity in April (excluding seasonal impacts) production increased slightly in May and June, by our estimate. After falling in the previous three quarters, turnover of sales in the second quarter remained similar to the first (-0.9%), while the y-o-y drop was lower. The second quarter also saw a change in inventories, which declined relative to the previous quarter (-4.0%) for the first time in three years, being for the first time also lower y-o-y (-1.0%). Figure 10: Industrial production in manufacturing Figure 11: Labour productivity by manufacturing industry group Y-o-y ■ Seasonally adjusted, q-o-q 12 8 4 0 -4 -C s -8 or <3 -12 -16 -20 -24 -28 a a a a Source: SORS; calculations by IMAD. In the second quarter, the volume of production was lower y-o-y in almost all industries, and the number of employees dropped once again as well. Only the manufacture of beverages posted a higher volume of production than in the same quarter of last year; the entire food-processing industry thus saw a smaller drop in production activity than in the first quarter. For the second quarter in a row, the manufacture of transport equipment also recorded a smaller y-o-y production decline, which is associated with measures implemented in certain European countries in the field of car sales. The greatest contributions to the declines in production volume (more than 10 p.p. in 5 0 -5 -C -10 < n -15 ^ o -20 -25 -30 -Q1 2009/Q1 2008 — -Q2 2009/Q2 2008 — — — — — _ - _ D B t // //' / \\ 1 Y \ / \ V —XT \ 1' \ / aaaoaaaoaaa a a Source: SORS; calculations by IMAD. Real turnover in hotels and restaurants continued to decline in June and was lower y-o-y in the second quarter as well. The lower y-o-y turnover in hotels and restaurants in June was largely due to fewer overnight stays by foreign tourists, while domestic tourists' overnight stays increased again after a drop in May. Real turnover in the second quarter and in the first half of the year combined dropped more than a tenth y-o-y. The number of foreign tourist visits also declined. The value of the business sentiment indicator rose slightly in August, but is still far below what was posted in the same period last year. After falling vigorously from September last year to April 2009, the business sentiment indicator Figure 19: Business tendency • Economic sentiment • Retail trade • Services -----Manufacturing -----Consumers Construction 30 20 10 0 -10 -20 -30 -40 -50 -60 fairly stabilised over the last months or even slightly increased. The slight improvement in August is mainly due to higher confidence in manufacturing and retail trade, while the consumer confidence indicator, and particularly the confidence indicator in construction, deteriorated again. Labour market Employment continued to drop in May and June, while the decline slowed at the quarterly level in the second quarter of the year. In May, the number of persons in employment declined by 0.3%, and in June by 0.2% (seasonally adjusted by a total of 0.4%), being as much as 2.6% lower than in June 2008.The number of employed persons thus declined by 0.9% in the second quarter compared with the first, and by 2.1% y-o-y.4 The greatest y-o-y declines were recorded for persons employed in manufacturing (by 10.1%), mining and agriculture. The number of employed persons was also lower than last year in distributive trades, transportation and miscellaneous business services (employment agencies), while remaining higher than in the same quarter of last year in most other sectors (including construction).The number of vacancies is slowly increasing, while the number of persons hired is stagnating; compared to last year, both numbers are down by roughly a third. The number of registered unemployed continues to grow, while the cyclical component of growth is slowing. At the end of August, the number of registered unemployed totalled 88,106, which is 351 less than in July, but 45.2% more than in last August. Quarterly growth halved in the Figure 20: Number of persons in formal employment and registered unemployed -Employed 2009 (left axis) ----Employed 2008 (left axis) ---------Employed 2007 (left axis) -Unemployed 2009 (right axis) ----Unemployed 2008 (right axis) -........Unemployed 2007 (right axis) Source: SORS, calculations by IMAD. 4 As a result of employment growth in the same period last year, the growth rates are ever more negative y-o-y. 10 5 ro 0 -15 40 90 80 70 60 50 Slovenian Economic Mirror, July-August 2009 15 Current Economic Trends Table 3: Labour market indicators Figure 22: Nominal gross wage per employee in % 2008 VI 09/ V 08 VI 09/ VI 08 I-VI 09/ I-VI 08 Labour force -0.6 0.0 0.3 0.7 Persons in formal employment 3.1 -0.2 -2.6 -1.2 - Employed in in enterprises and organisations and by those self-employed 3.1 -0.3 -3.1 -1.3 Registered unemployed 11.4 2.3 42.4 25.9 Average nominal gross wage 8.3 1.0 4.7 5.0 - private sector 7.8 1.5 2.3 2.2 - public sector 9.8 -0.2 9.9 11.7 2008 VI 09 V 09 VI 09 Rate of registered unemployment, in % 6.7 6.4 8.9 9.1 Average nominal gross wage (in EUR) 1,391.43 1,364.53 1,415.38 1,429.12 Private sector (in EUR) 1,315.49 1,293.44 1,303.47 1,322.92 Public sector (in EUR) 1,642.58 1,601.17 1,763.96 1,759.92 Sources: ESS, SORS; calculations by IMAD. second quarter of the year, to 10.0%. In the second quarter of 2009, 9.3% fewer persons lost jobs than in the first, yet 111.6% more than in the same quarter of 2008, while 25% more unemployed persons found jobs than in the first quarter of 2009. Monthly growth remained the same in July as in June (2.3%), but was significantly impacted by the usual seasonal layoffs of temporary workers before the summer holidays. The inflow into unemployment due to job loss for other reasons was smaller than in previous months, and somewhat more persons found work in July than in June. The number of the unemployed who found work remains notably higher than in the same period last year for the third month in a row. The registered Figure 21: Employed persons who lost work and unemployed who found work -Lost work 2009 -Unemployed who found work 2009 ----Lost work 2008 ----Unemployed who found work 2008 .........Lost work 2007 12 \ \ \ - --' --- — —' — --- \ ------ Source: SORS; calculations by IMAD. Figure 23: Nominal gross wage in the private sector • Industry (B-F) - Production services(G-I) - Business services(J-N; S) • Agriculture * (A) Q. ^ on U Source: ESS; calculations by IMAD. Source: SORS; calculations by IMAD. Note: * as less than 1% of persons employed in the whole sector work in agriculture, the series is much more volatile. unemployment rate increased in June, to 9.1% (to the level of August 2006). The average wage per employee increased in June, and its y-o-y growth therefore strengthened as well. The gap between wage rises in the private and public sectors was somewhat narrower. The gross wage per employee rose by 1.0% at the nominal level in June and its growth strengthened to 4.7% y-o-y. It totalled 4.6% on average in the second quarter as a whole, 4.0 p.p. less than in the same period last year. In the private sector, the average wage per employee increased in June and its y-o-y growth strengthened for the second time this year. June's gross wage increase 18 16 14 12 10 8 6 4 2 0 16 12 8 4 0 10 8 6 o 4 2 0 16 Slovenian Economic Mirror, July-August 2009 Current Economic Trends in this sector (1.5%) is largely a consequence of rises in the industry group (where the highest increases were recorded in electricity, gas and steam supply, and mining). Growth climbed to 2.3% y-o-y, with the negative contribution once again coming from overdue payments and payments for overtime work, as in all months5 of this year. The volume of paid overtime work, having declined since September 2008, has not been dropping in the last four months. In the second quarter, this sector's gross wage posted 1.6% y-o-y growth, 7.8 p.p. lower than a year before. The lowest growth6 was recorded for the industry group (0.6%) and the highest for production services (2.1%). Prices Y-o-y price growth was higher in August than in July, while the average price level remained the same as in August last year. In August, consumer prices remained unchanged relative to July (last year -0.6%), as they did relative to August 2008. Prices increased by 1.4% in the first eight months of this year (last year by 3.5%). In July, Slovenia saw deflation on a y-o-y basis, and a somewhat stronger slowdown in core inflation. While the euro area as a whole had already witnessed y-o-y deflation in June, Slovenia posted a y-o-y price drop in July. In the total euro area and in Slovenia, the reasons for the y-o-y consumer price decline were the same. Since Figure 24: Nominal gross wage in the public sector Public administration - Education - Human health and social work act. Arts, entertainment and recreation ----' r-j- t \ • 1 t ■i Figure 25: Inflation in Slovenia and in the whole euro area -Slovenia: Inflation -----Slovenia: Inflat. excl. energy and unproces. food £ 5 ï or ä 4 o ^ 3 2 • Euro area: Inflation Euro area: Inflat. excl. energy and unproces. food Source: SORS; calculations by IMAD. Source: SORS, Eurostat. The average wage per employee in the public sector was somewhat lower in June than a month before and its y-o-y growth slowed as well. In June, the average gross wage in the public sector was 0.2% lower7 relative to the previous month. Its growth slowed slightly y-o-y (in all activities), but is still much higher (9.9%) than in the private sector. In the second quarter, y-o-y growth totalled 11.4%, 4.5 p.p. more than in the same period last year. 5 With the exception of February with overdue payments. 6 Breakdown by activity indicates the greatest nominal gross wage declines in financial and insurance activities (-3.8%) and manufacturing (-0.5%), and stagnation in real estate activity (0.0%). 7 It dropped in health and social work, and in creative, arts and entertainment activities (by 1.1% and 0.7%, respectively), but rose (by 2%) in public administration and education. Figure 26: Breakdown of y-o-y inflation Liquid fuels Food Other Services Sources: Monthly Bulletin of the BS, SMA (Securities Market Agency); calculations by IMAD. 30 25 8 7 t; 20 6 S 15 10 5 0 0 8 7 6 3 2 0 Slovenian Economic Mirror, July-August 2009 17 Current Economic Trends Table 4: Prices 2008 2009 in % XII 2008/ XII 2007 ® (I 08-XII 08)/ ® (I 06-XII 07) VII 09/ VI 09 VII 09/ VII 08 ® (VIII 08-VII 09)/ ® (VIII 06-VII 07) Consumer prices (CPI) 2.1 5.7 -0.9 -0.6 2.3 Goods 1.3 6.0 -2.1 -2.2 1.7 - Fuel and energy -7.2 10.6 0.5 -10.9 -1.7 - Other 3.2 5.0 -2.1 -2.2 1.7 Services 3.8 5.0 1.8 2.9 3.7 Consumer prices (HICP) 1.8 5.5 -0.8 -0.6 2.2 Administered prices1 -7.8 9.6 0.4 -10.0 -2.7 - Energy -11.9 14.4 0.5 -17.8 -4.8 - Other 0.4 0.1 0.3 2.6 0.6 Core inflation - trimmean 2.6 3.9 -0.5 0.4 2.2 - excluding (fresh) food & energy 3.9 4.6 -0.9 1.4 3.3 Consumer prices in the EMU 1.6 3.3 -0.7 -0.7 1.4 Producer prices of domestic manufacturers - domestic market 3.1 5.6 -0.2 -1.3 2.2 - EMU -0.1 2.1 -0.3 -4.7 0.4 Sources: SORS. Eurostat. calculations by IMAD. Note: 1 due to annual changes of the administered price index. figures are not directly comparable across years. the second half of last year, inflation has been slowing at a rapid pace mainly due to the "base effect", which this July was related to the approximately USD 70 a barrel lower level of oil prices on global markets, which contributed 1.0 p.p. to y-o-y deflation. Moreover, in July, retail food prices were just below the level of twelve months before. Over the last few months, in addition to oil and food prices, upward pressures are easing in other price groups as well, which is associated with low economic activity. Service price rises thus contributed 0.9 p.p. to the -0.6% y-o-y price growth, and food price rises -0.2 p.p. The same contribution also came from price rises of all other goods. In July, producer prices of manufactured goods on the domestic market declined for the eighth time in the last ten months. With a monthly price decline of -0.2%, y-o-y deflation rose as well (to -1.3%), which is still mainly due to the y-o-y drop of prices in the manufacture of food products and metals. Over the past twelve months, prices Figure 27: Core and measured inflation - inflation - Core inflation (tream mean) Core inflation (excluding fresh food and energy) Source: SORS. Figure 28: Nominal and real effective exchange rates 114 112 110 108 106 104 102 100 98 96 94 92 Nominal effective exchange rate - Real, deflated by CPI -Real, deflated by PPI Source: ECB, SORS, OECD; calculations by IMAD. 7 6 5 i= 4 3 2 0 Slovenian Economic Mirror, July-August 2009 18 Current Economic Trends in the manufacture of food products dropped by 2.8%, and prices in the manufacture of metals by 20.0%. Given relatively weak production activity, pressures on producer price growth are also easing in most other sectors. Figure 29: Real effective exchange rates of euro area members deflated by HICP lJun. 2009 / Dec. 2008 ■ Jan. -Jun. 2009 /Jan. -Jun. 2008 1.5 1.0 Üf 0.5 S o m 0.0 o ^ -0.5 -1.0 -1.5 -2.0 -2.5 Q U < U Source: ECB; calculations by IMAD. In June, Slovenia was among the euro area members posting relatively the most unfavourable movements of price competitiveness of the economy, even though inflation in Slovenia was slowing. Given the stronger euro and higher growth of relative consumer prices,8 the effective exchange rate continued to increase gradually in real terms in June (0.5% per month, 0.2% y-o-y and 2.4% compared with December). In the first six months as a whole, Slovenia's price competitiveness was still just below the level of a year before (0.2% weaker), but amid a concurrent improvement in most euro area countries. In June, Slovenia's price competitiveness deteriorated the most, compared with December. The relatively greater deterioration of Slovenia's price competitiveness than in other euro area countries is in great part due to the decline (or weaker growth) of relative consumer prices in most of the Member States. Partly it is also related to the structure of Slovenia's foreign trade, i.e. the above-average share of trade with the EU. The impact on Slovenia's price competitiveness of the appreciation of the euro against other EU currencies was consequently higher, while the influence of the euro's depreciation against some currencies outside the EU (particularly the USD and JPY) was smaller. After improving for two months, price competitiveness in manufacturing stagnated at the level of May, while its y-o-y deterioration continued at an accelerated pace. The real effective exchange rate deflated by relative producer prices in manufacturing (on the domestic market) rose only slightly in June (by 0.1%), after a two-month decline, while its y-o-y growth increased from 2.9% to 3.7%. Amid a small improvement in the first six months of the year (by 0.5% compared with December), the y-o-y deterioration of price competitiveness in manufacturing in the first six months as a whole remains somewhat more pronounced (2.9%), given that in the last quarter of 2008 Slovenia recorded a smaller monthly decline in producer prices than its trading partners. Balance of payments In June, the current account balance recorded a surplus for the third month in a row (EUR 133.2 m); in the second quarter of 2009, current transactions thus ran a surplus of EUR 258.0 m for the first time in three years (a deficit of EUR 486.0 m in the same period last year). The current account surplus was largely a consequence of movements in the balance of merchandise trade, which posted a surplus in the second quarter of this year, as did the balance of current transfers. The factor income deficit was also lower y-o-y, as was the surplus in the services balance. After posting a significantly lower deficit y-o-y in the first quarter of this year, the balance of merchandise trade recorded a surplus of EUR 41.7 m in the second. Besides a higher decline in the volume of imports compared with exports, it was also influenced by the terms of trade, which improved by 3.8% in the second quarter, by our estimate. Due to lower global demand, oil and other primary commodity prices expressed in USD declined significantly y-o-y (by 51.7% and 27.9%, respectively). With the appreciation of the EUR against the USD, export prices in EUR dropped by 3.9% y-o-y and import prices by 7.5%. The surplus in the services balance was lower y-o-y for the second quarter in a row, by EUR 110.5 m, dropping to EUR 364.2 m. The decline was mainly a result of a lower surplus in the trade of road transport and other business In the second quarter, the deficit in factor income balance was lower y-o-y, as a consequence of lower net capital expenditures. Net interest payments of the domestic banking sector to the rest of the world have been diminishing for as long as six months, given a further interest rate decline and net repayment of foreign loans. The surplus in the balance of current transfers was largely a consequence of higher receipts from the EU budget. International financial transactions (excluding international monetary reserves) posted a net capital outflow for the second quarter in a row, with capital flows still indicating aggravated access to foreign sources of finance. The net capital outflow of the private sector is still higher than the net capital inflow to the general government and the BS. In the second quarter of this year, the net capital outflow totalled EUR 146.8 m (a net inflow of EUR 657.9 m in the same period last year). 8 In Slovenia, compared with its trading partners. 2.5 Slovenian Economic Mirror, July-August 2009 19 Current Economic Trends Table 5: Balance of payments I-VI 09, EUR m Inflows Outflows Balance1 Balance, I-VI 08 Current account 10,897.0 10,841.5 55.5 -911.0 - Trade balance (FOB) 8,004.2 8,089.6 -85.4 -1,156.9 - Services 2,004.9 1,373.9 631.0 808.3 - Income 508.8 898.2 -389.4 -408.9 Current transfers 379.1 479.7 -100.7 -153.5 Capital and financial account 2,042.3 -2,213.6 -171.3 1,175.6 - Capital account 125.6 -92.6 33.0 -5.1 - Capital transfers 124.7 -89.0 35.7 -4.3 - Non-produced, non-financial assets 0.9 -3.6 -2.7 -0.8 - Financial account 1,916.7 -2,121.0 -204.3 1,180.8 - Direct investment 44.6 -432.5 -387.9 -27.7 - Portfolio investment 1,228.7 720.4 1,949.1 -847.0 - Financial derivates -29.1 4.6 -24.5 34.4 - Other investment 512.6 -2,413.5 -1,900.9 2,022.3 - Assets 510.8 0.0 510.8 -1,165.5 - Liabilities 1.8 -2,413.5 -2,411.7 3,187.8 -Reserve assets 159.9 0.0 159.9 -1.3 Net errors and omissions 115.8 0.0 115.8 -264.6 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. Direct investment posted a net outflow of EUR 273.8 m in the second quarter of this year. Equity capital and other capital had equal shares in the structure of domestic direct investment abroad. Inward direct investment was modest, in the amount of EUR 50.1 m (EUR 308.3 m in the same period last year). For the second consecutive quarter, foreign investment enterprises made net repayment of loans to foreign parent companies and affiliated enterprises abroad. Portfolio investment reached a net inflow of EUR 1,074.5 m in the second quarter of this year, which was, similar to the first quarter, largely due to investment in debt securities. In April, the RS namely issued a five-year bond in a nominal amount of EUR 1.5 bn with a 4.375% interest rate; a quarter of issued bonds were purchased by domestic and the rest by other investors. Figure 30: Components of the current account balance 600 400 200 0 : -200 i -400 -600 -800 ■ Trade balance I Factor incomes - Current account Services balance Current transfers Figure 31: Financial transactions of the balance of payments I Direct investment I Financial derivatives - Net financial flow Portfolio investment I Other investment Source: BS. 2000 1000 0 Source: BS 20 Slovenian Economic Mirror, July-August 2009 Current Economic Trends Other investment also posted a net capital outflow in the second quarter (EUR 946.3 m). This was mainly a consequence of domestic commercial banks' repaying short-term loans to the rest of the world in June (EUR 1,286.2 m). In the second quarter, domestic commercial banks, on the other hand, financed the rest of the world with EUR 171.5 m worth of short-term loans. Slovenia's gross external debt amounted to EUR 37.6 bn at the end of June (102.7% of estimated GDP) and gross external assets in debt instruments EUR 28.0 bn (76.5% of GDP). Net external debt totalled EUR 9.6 bn at the end of June, increasing by EUR 76 m relative to the end of 2008. Financial markets The lending activity of domestic banks strengthened somewhat in July. Banks recorded net lending in the amount of EUR 217.1 m in July, the highest value in the last five months, accounting for almost 30% of total net flows of loans given in the first seven months of 2009. Relatively strong, household borrowing stood out significantly compared with previous months, while corporate and NFI borrowing, albeit positive, was rather low. In July, the government moved a significant portion of its deposits to long-term deposits, which might have contributed to somewhat higher lending activity by banks. The situation on international interbank markets is still fairly tight; in June alone, banks repaid a net EUR 1.3 bn worth of loans, which is the highest figure to date. The volume of net household borrowing exceeded EUR 100 m for the first time since October 2008. The rebound in borrowing is largely a consequence of significantly stronger net borrowing for other purposes, which Table 6: Financial market indicators Domestic bank loans to non-banking sector and household savings Nominal amounts, EUR bn Nominal loan growth, % 31. XII 08 31. VII 08 31. VII 09/ 30. VI 09 31. VII 09/ 31. XII 08 31. VII 09/ 31. VII 08 Loans total 31549.1 32276.6 0.7 2.3 7.2 Enterprises and NFI 23137.5 23421.3 0.2 1.2 5.9 Government 584.6 800.8 8.6 37 68.8 Households 7827 8054.6 1.3 2.9 7.1 Consumer credits 2883.9 2869.3 0.2 -0.5 0 Lending for house purchase 3395.3 3636.5 1.4 7.1 16.9 Other lending 1547.7 1548.8 3.2 0.1 0.4 Bank deposits total 13689.1 14096 -0.8 3 6.5 Overnight deposits 5249.4 5578 -2.8 6.3 4.5 Short-term deposits 5644.8 5501.1 0.2 -2.5 0.1 Long-term deposits 1957.7 2463.9 3.6 25.9 60.5 Deposits redeemable at notice 837.2 552.9 -7 -34 -35.8 Mutual funds 1513.4 1718.8 4.1 13.6 -22.3 Sources: Monthly Bulletin of the BS, SMA (Securities Market Agency); calculations by IMAD. Figure 32: Net flows and growth of domestic bank loans to domestic non-banking sector Households (left) ^^m Enterprlses&NFI (left) Government (left) -----Households (right) >*G>>-Q ^ CT DOcuro^ocuro^