Abstract

Domestic consumption decreased in July, a decline was but exceptional, a longer-term dynamics remained robust. Both, investment spending and government spending were reduced. Foreign demand began to crumple in June, as well. The contraction in exports is bounded mainly to exports to other EU countries, while exports outside the EU remain stable. Despite the slow-down of domestic and export demand, companies do not consider the performance to be poor. Manufacturing activity in July was not subjected to the demand constraints, while the demand for services remained weak and continued to hamper recovery. Expectations for the next few months do not point to a contraction in demand. The own assessment of the economic situation by the households continues to improve, but the uncertainty, regulatory compression of banks and systematic criminalization of normal credit business discourage them from major purchases of consumer durables.

The slowdown in growth of foreign trade continued during the summer; former surplus was replaced by deficit; while the potential negative consequences of the VW scandal will be shown in the autumn months.

The economic climate has cooled somewhat in September; this is mostly due to a reduction in confidence in the manufacturing sector and in construction, while confidence in the services sector improved somewhat. Expectations for the next three months have deteriorated in manufacturing, while they have improved in construction. Confidence in the retail trade has strengthened, but expectations have deteriorated. Economic sentiment in the EU28 in September compared to September last year recovered.

Industrial production in the year to year comparison improved, but the trend has stagnated. In August, the industrial production in the EU28 decreased slightly, in the euro area slightly more. In both, there was a growth in year on year comparison; most notably in Sweden and Greece, while the biggest decrease was in the Czech Republic and Croatia.

The value of finished construction works in August was lower than in July, but the trend of construction hours indicates that construction is growing. Tourism was successful in the summer, the number of overnight stays in the year increased by one-tenth; both foreign and domestic tourists contributed.  The number of air passengers increased even more, road transports stagnated, transport at the Port of Koper was a quarter larger than last year.

Labor market situation is improving. The number of active population is decreasing, while the number of working population is rising. The number of employees and self-employed is increasing as well. This reduces the number of job-seekers; the newly registered job seekers lag behind the number of those who leave employment offices.  Labor market institutions are otherwise increasingly effective in recruiting people who have lost their jobs, and there is increasing precariousness of employment: people who lose their jobs because they reached the end of fixed-term employment term again obtain employment for a specified time or become self-employed 'entrepreneurs'. The unemployment rate in the euro area remained the same in August as in July, but was 0.5 percentage points lower than in August last year. Among the EU Member States the lowest unemployment rates are in the Czech Republic and in Germany, the highest in Spain and in Greece.

Deflation is not giving up. September prices decreased again, and even longer-term dynamics remained negative. While the prices were until September pushed down by lower prices of oil the prices of services fell sharply in September. Of the product groups, the highest increase of prices was in clothing and footwear while prices in transport, recreation and culture activities decreased. Endogenous deflation is in Slovenia much stronger than in the euro area. Industrial producer prices in August fell even more and long-term dynamics remained negative. Price expectations indicate that in the next few months one can expect very weak price dynamics. Raw material prices in the past month rose slightly; mostly oil and food prices, while the prices of metals declined. In a year, prices of raw materials decreased,  the price of oil the most, and food prices the least.

In August, wages in the business sector continued to decline, more long-term dynamics remained virtually unchanged. The wages in the government sector increased slightly in all three segments (public administration, education, and health and social care). In a year, wages increased the most in manufacturing, financial and insurance services and professional, scientific and technical activities. In the government sector, wages increased in public administration, remained unaltered in the health sector, while they decreased in education.

Labor costs in the business sector in the last year and a half were rising as fast as in the euro area with a much larger fluctuations; while in general government labor costs were stagnating and increasingly lagging behind the euro area.

Revenues of the general government sector in September declined sharply which reduced the more long-term dynamics, as well. The bulk of the fall has brought by halving of the revenues by excise duties, which is most likely the result of moving the timing of payments. This is confirmed by the structural dynamics of the value added tax; reduction of value added tax on domestic sales and constant influx of value added tax on imports.

Direct taxes and other fiscal revenues rose in September, they grew even more in the long term. The revenues of the personal income tax increased the fastest while other more important direct tax forms stagnated or decreased slightly.

Total loans in August fell again; the cumulative decline in this year has been even faster than before the rehabilitation of the banks. The dynamics is lagging behind euro area dynamics which is the case  particularly for loans to companies. On the other hand, deposits are rising, especially rapidly the deposits of companies. There is no sound explanation for the compression of credits. Namely, the demand in large parts of the economy is at a normal level, corporate indebtedness in Slovenia is already well below average indebtedness in the euro area, and indebtedness of households is the lowest in the euro area, the dynamics of deposits (liquidity) is stronger than in the euro area. This systematic blocking of credit financing is used at a time when ECB purchases over € 60 billion of securities monthly (correspondingly over 200 million of Slovenian banks) to increase credit and economic activity. It is therefore a deliberate blocking of credits, which is indicated by a comparison between credit standards for households in Slovenia and in the euro area, where the households are much more in debt than Slovenia households. Such inhibition of potential growth of the banks' trading activities does not hinder only economic recovery but also the rehabilitation of bank balance sheets.

Growth in the balance of payments surplus continued in August; after eight months it has already reached 4.8% of last year GDP, the net external debt amounts to one third of annual GDP. Two-thirds of the gross external debt is accounted for by the state.

The surplus of the current account is created by a surplus on the trade account and on the services account; they exceed the deficit in the accounts of primary incomes and current transfers.
The capital and financial account after eight months indicate an increase in liabilities. The liabilities created through direct investment account decreased while they increased by purchases of securities and other investments. All flows are much more subdued this year than they were last year. Slovenia's gross external debt increased by less than one percent; the share of private debt is steadily decreasing, the share of the public debt correspondingly increasing. Net external debt reached a third of last year's GDP. The yields on 10-year government bonds of Slovenia and their dynamics are comparable to the yields on Italian and Spanish bonds.