Abstract:

The October data on domestic spending does not bring much new. Encouraging is steady growth of investment demand, which indicates that the investment is likely to accompany net exports in stimulating economic activity.  Consumers are at the beginning of the year much less pessimistic than in previous years, which indicates that the predominant negative perceptions and expectations might turn to become positive in the coming months. Therefore, it is hoped that the optimism will not be repressed by senseless institutional changes, which do not increase tax revenues.

Exports in November accelerated, trade balance was in equilibrium. In the eleven months of 2014, Slovenia had above-average foreign trade results: a significant increase in exports, a positive trade balance and improved terms of trade. By the growth of exports is in the fourth place, by  growth of imports in the twelfth to the fourteenth, and it ranks among the twelve EU28 states with a positive trade balance. Annual growth rate of export prices was positive and of import prices negative, while at the level of EU28 export and import prices dropped.

 The business climate improved in January; mostly due to higher consumers´ confidence. The level of confidence in the service sector in January was the same as in the previous month, higher than in January 2014 and higher than the long-term average. Expectations in service sectors for the next three months are slightly lower. Confidence in construction decreased a little, but expectations improved. Confidence in the retail trade increased due to higher sales. The economic climate in the EU28 has deteriorated somewhat, expectations have risen only in construction and retail trade.

Industrial production in the yearly comparison improved, impulse trend reversed. The growth was strongly reduced by a significant drop in mining, as the annual rate in the manufacturing sector remained high, though impulse trend also turned down. In November, industrial production in the EU28 and in the euro area rose slightly but declined in the year to year comparison; fluctuations and changing the direction of the states continue.

The value of construction works in November swung down. Total number of overnight stays in the high autumn decreased but it increased if measured year on year, as the number of domestic and even more the number of foreign visitors rose. A favorable trend, according to the preliminary data, continued in December 2014; domestic tourists had more arrivals and less overnight stays, while arrivals and overnight stays of foreign tourists increased. Number of passengers carried in air and urban transportation grew; in the Port of Koper transport of goods was one tenth higher than a year earlier.

Active population and employment grow slowly. The increase of the number of job seekers in December and January was seasonal, as the trend in the number of job seekers is decreasing. Most new entrants in the employment offices come from the ranks of previously temporary employees; precarious jobs have become normality.

Prices continue on the edge of deflation. In December, retail sale prices fell by half a percent, after one year they are only slightly above last year's value; prices of goods declined, prices of services increased. According to harmonized inflation Slovenia and the euro area have been in deflation. Prices have fallen both monthly and on an annual basis, price movements in Slovenia are also becoming increasingly structurally similar to price movements in the euro area. The most significant, both in Slovenia and in the euro area, was cheap energy. Industrial producer prices more or less stagnate, last year growth was very slow, only equipment became more expensive, raw materials and consumer goods became cheaper. Imported products, both those from the euro area and from elsewhere, have become cheaper; the prices of crude oil, gas and petroleum products have contributed most.

Gross and net, monthly and hourly wages rose sharply in November. Annual comparisons nevertheless indicates that there is a seasonal jump as the annual dynamics in November is similar to the  dynamics in  October. Despite large general increase in November, wages have not increased in all activities; lower than in October were in the catering and in financial and insurance activities, almost unaltered were in the broader public sector and also in construction. In a year, average gross wages grew only one percent, the most in transportation and storage and in manufacturing. Gross wages in a year increased above average in electricity, gas, steam and air conditioning, construction, trade, public administration and defense, below average wages grew in mining, scientific and technical activities, education and health. Those employed in agriculture and forestry, electricity, gas and steam in the hospitality industry, the financial sector and insurance industry, the real estate business, cultural and recreational activities, and other activities earned less than a year ago.

December's public revenues were significantly higher than in November and a little higher than in December 2013. The revenues from direct taxes and social contributions were higher, revenues from indirect taxes were lower than a year earlier. Throughout 2014, 677 million € more than in 2013 flowed into budgets; the main contributors were taxes on corporate income and more modest personal income tax. VAT on domestic activity brought more than a year ago, approximately equal to previous year were revenues from the excise tax. VAT on imported goods decreased. The increases of inflows into health and pension fund were modest. There are no new data on the public expenditure structure. General government revenues in the last eight years more or less stagnated at around 14 billion € per year; social security contributions and revenues from indirect taxes had growing trends, revenues from direct taxes had decreasing trend. The real government revenues, despite low inflation, declined.

The contraction of credits continued. Credits for nonfinancial corporations are now only a little above the level nine years ago, when the credit expansion began. Large "promising" transfers of bad loans to   DUTB at the end of 2013, which should normalize crediting of the economy, have not brought reversal. Lending to companies from the highest level in July 2010 almost halved. Continuing to stagnate or slowly shrinking are loans to households and non-monetary financial institutions. Despite the reduction in loans, deposits of enterprises increased considerably; the reasons for this lie in the balance of payments surpluses. The deposits of the households have been since mid-2014 rising again.  The loan-deposit ratio is only 1:03, a number that characterized banking before the gambling period when deposits in banks sufficed for lending. The loan-deposit ratio of 1.65 in mid-2010, decreased to 1.38  before the "large" transfer of bad loans at the end of 2013, and after it to 1.22, the "small" transfer at the end of 2014 brought it to 1.05; loans were the pillars as they decreased by 10 billion €, while  deposits increased by only one and a half billion €.

Part of the answer to the question about the increasing "irrelevance" of banks for the operation of non-financial corporations is offered by the balance of payments surplus, while loans for small service companies on the domestic market are most likely provided by the grey credit market. According to the banks, the reasons for miserable credit activity is to be sought on the demand side, potential borrowers see it in increasingly complex bureaucratic procedures by banks. However, it seems that the primary reasons for the banks' conduct are political and not economic in nature, it is the environment in which banks do not dare to take risks, reprogram loans or keeping confiscated shares of non-financial corporations, let alone solving a particular company because of national economic interests. The authorities, however, under the pretext that they should not interfere in the economy or by reference to prohibited state aid, look away.

ECB interest rates have not changed since September; it seems that the ECB after many years of crisis, realized that its steering interest rates are irrelevant in controlling inflation and preventing deflation and even more so to foster economic recovery. Interest on money market rates declined slightly in November. There has been a significant decline in deposit interest rates; new deposits over 2 years are virtually absent. Lending rates on new loans to non-financial corporations last year also fell for general loan, new long-term loans are as well as virtually absent. The interest rate on a new lending to households remains high, the effective interest rate on housing loans has decreased, slightly lower is the interest rate on consumer loans.

The surplus in the current balance was in November below average, but higher than in November 2013. In 11 months of 2014 together, the surplus in the current balance of payments is of around 2 billion euro; this was mainly due to a higher surplus in merchandise trade, and permanent (last price slightly lower) surplus in services trade. Balance of payment was reduced by the increase in the deficit on the labor and capital account as well as on the transfers account. The financial account continued to show  inflow of capital through investments in securities and  its outflow through other investments. Gross debt of Slovenia in November increased by a billion and is close to 45 billion euro, of which the public and publicly guaranteed is more than 60 percent. Net debt remains below 12 billion euro. Yields on 10-year government bonds, which were 1.5% on February 1, indicate increased confidence of international financial markets.