ABSTRACT

There are no new data on domestic demand. Continued rapid growth in export demand in October indicates that the positive effects of international trade on economic growth might continue in the fourth quarter. Consumers` evaluation and their expectations can be considered optimistic. Consumer` confidence and assessment of their financial situation is less negative than it was in December 2013 and more of them expect that the financial situation in the next twelve months will improve. The estimates of the economic situation and the assessment of the economic situation in the next twelve months are also better; inflationary expectations are unaltered, the expectations of unemployment are improving. Less consumers than a year before are rejecting potential purchases in next twelve months, fewer reject the possibility of major purchases, and more than half of them consider financial situation of their households as good.

International trade exhibits positive dynamics: faster growth of exports than imports, and a positive balance in total trade and trade with non-EU countries, while the deficit in trade with EU Member States is gradually disappearing. Slovenia is among the most successful EU Member States, as her foreign trade is growing while trade in the EU28 and in the euro area is falling.

The economic climate in December was relatively good. It was created by higher level of confidence in the manufacturing sector, slightly reduced level of confidence in the service sector, upward adjusted confidence in the construction sector and lower level of confidence in the retail trade. The economic climate in November 2014 compared to the same period in 2013 across the EU28 improved slightly, but business optimism worsened.

Industrial production in the annual comparison restored, especially in manufacturing. Industrial production in the EU28 and the euro area was in October 2014, only slightly larger than in September, and it increased less than one percent compared with October 2013.

Construction activity lagged behind the levels in September and in October 2013. Total number of tourist overnight stays decreased, again mainly due to a decrease in the number of domestic visitors, which was joined by weaker drop of foreign visitors. Air passenger transport continued to grow strongly, activity was good in the Port of Koper, urban transport slowed slightly.

In the labor market, the situation improved again; there was a slight increase in the number of active population, employees, and self-employed. In November, the number of job seekers was lower than in November 2013; the number of newly reported unemployed persons decreased, most of them occurred due to the termination of temporary employment. Among the slightly larger number of those who left employment services, majority found job or became self-employed. The unemployment rate in the euro area and in the EU28 remained unaltered in October, but decreased compared with October 2013. More than three-quarters of the unemployed in the EU are in the euro area, the highest unemployment is in Greece and Spain, and lowest in Austria and Germany.

December brought no change to more long-term price movements in Slovenia and the euro area. In a year (December 2013), consumer prices rose slightly in Slovenia, commodity prices decreased, prices of services increased. In November, retail prices fell in all EU Member States except in Germany and Austria, suggesting accelerated convergence to yearly deflation in the EU and even faster in the euro area. While in 2012, inflation in the euro area was above the target of two percent, it fell below one percent in 2013 and to only 0.3 percent in November 2014. Bulgaria, Greece, Spain and Poland already face deflation on an annual basis.

Industrial producer prices in November 2014 decreased for products for the domestic and foreign markets; the prices of industrial products are equal to the prices in November 2013; the prices for products for the domestic market decreased, while the prices of the products for foreign markets went up. Import prices were lower in November than in October; the products from the euro area became cheaper. Raw material prices have not changed a lot except for lower prices of crude oil and natural gas.

The average gross and net earnings in October were higher mainly due to higher number of working hours than in September, hourly wage in most sectors decreased. The only exceptions are salaries in financial activities, which increased substantially both in a month or for an hour.  Wages in the supply of electricity, gas and steam providing sector decreased most; the monthly and hourly wages declined in education, as well.

That the burden of the crisis hit employees rather than employers and "employers" is shown by the evolution of labor and capital shares in GDP. In Slovenia, the share of labor from the fourth quarter of 2008 decreased from 53.2 percent to 50.7 percent, while in the German economy the share rose from 55.2 to 55.8 percent. The crisis was mainly paid by employees in the peripheral European economies and new EU member states.

Fiscal revenues in November 2014 were lower than in October but higher than in November 2013. Social security contributions remained almost unchanged, the two largest social security funds, health and pensions, in November received about the same amounts as in October. Cumulatively, fiscal revenues in the first eleven months exceeded corresponding revenues in 2013 by 659 million €. This was mainly contributed by revenues from the tax on corporate income, income tax, domestic VAT while revenues of VAT on imported goods were lower.

Statistical office of the Republic of Slovenia estimated the deficit in three quarters of 2014 to be 4.5 percent of GDP. The lion's share of the increased revenues went to pay interest and for investment in fixed assets. The primary deficit is estimated at to 1.3 percent of GDP, half of what it was in 2013, while public debt is estimated at 78.1 percent of GDP. The structure of expenditure by function in 2013 was strongly influenced by the rehabilitation of banks; the share of expenditure on economic activity was placed after the share of expenditure allocated for social protection.

Though tremendous decrease in loans in October is due to the re-transmission of bad debts, loans continued to shrink in November 2014. Deposits of non-financial companies decreased, while deposits by households increased. Constantly shrinking credit activity raises the question of what the banks intend to do in the future. Large successful export companies do not need their services while small companies in the service sector cannot get loans; they are thus forced to seek loans on the gray and get engaged in barter trade. In the atmosphere faced in Slovenia, bankers apparently do not dare to reprogram loans or keeping confiscated shares of non-financial companies for a while. This is understandable; if you do not do anything, you will not become a “criminal”. However, the banks will not be able to survive, despite the extremely low deposit interest rates, invention of new costs charged for the payment services and guarding deposits. Particularly, because they face additional costs of the newly invented control by ECB.

Since September ECB interest rates have not changed; it is but unusual that the ECB after many years of crisis, does not find out that its interest rates have become completely irrelevant both to control inflation or deflation and to speed up economic recovery. The interest rate of new deposits and loans of different maturities are diminishing, new long-term deposits and loans almost do not exist.

The balance of payments data in October confirm that foreign trade remains a key in the growth of GDP in 2014. Namely net exports in October amounted to 10 percent of GDP, reflecting the typical austerity policy imposed by the EU, and a lot of pain of Slovenian population to reimburse old debts. By continuing with similar dynamics in the last two months of 2014, one can expect full-year surplus of the current account balance of payments of over 6% of GDP, which is too high both in terms of lack of imports of technology and compression of spending.

The surplus in balance of payments in comparison with 2013 is the result of a large surplus in goods, somewhat more modest surplus in services, a larger deficit in primary incomes, and a lower deficit in current transfers. Financial surplus is generated by the inflow of direct investment, inflow of capital through investments in securities and capital outflow through other investments. Gross external debt is increasingly dominated by guaranteed public debt.