7

Economic growth in the euro area continues the year, although at a slower pace than in previous quarters; the EC expects that GDP growth in 2018 will remain similar to last year. According to Eurostat's preliminary flash estimate, GDP rose by 0.4% (seasonally adjusted) in the euro area in the first quarter of 2018, which is slightly less than expected and less than the quarterly average in 2017. In its most recent forecast, the EC projects GDP to increase by 2.3% this year and by 2.0% in 2019, but it warns of elevated downside risks to the forecast, mainly due to developments outside the euro area. According to IMF projections, global economic growth this year and next will remain similar to 2017 (around 3.9%).

At the beginning of the year, activity in export-oriented sectors of the economy was slowed by developments in the international environment, while construction activity and private consumption continued to expand. Exports and manufacturing output in the first two months were affected by increased uncertainties in the international environment and recorded similar volumes to those at the end of 2017. Turnover in market services also maintained 2017 levels, while growth in the trade sector slowed. Activity in construction was influenced by weather conditions, but construction volume was considerably higher than in the same period last year. Private consumption expanded further, reflecting favourable labour market trends, high consumer confidence and relatively strong growth in household loans. Confidence in the economy remained higher than the long-term average, despite a deterioration in recent months.

 

Figure 1: Short-term indicators of economic activity in Slovenia (Source: SURS; calculations by IMAD)

 

The strong growth of Slovenia's goods market, the EU and global markets continued in the last quarter of 2017, although the price competitiveness of Slovenian exporters deteriorated somewhat in the first quarter of 2018. The growth in market share in the EU accelerated further, driven mainly by vehicle exports to France. The competitive position of exporters during this period was favourably impacted by lower cost pressures than in Slovenia's trading partners (measured by unit labour costs), which mitigated the negative impact of the appreciation of the euro. The euro has continued to appreciate this year. With similar movements in relative prices (measured by inflation), this has led to a slight increase in the real effective exchange rate.

The number of employed persons continued to rise in the first months of the year; wage growth also strengthened. Favourable labour market conditions are reflected in the rapidly rising number of employed, which has now reached the level last seen in mid-2008. With higher employment and less unemployment than last year, the number of registered unemployed also continues to fall, down 13.8% year-on-year at the end of April. Short-term expectations about future employment remain high. Wage growth has strengthened in the private sector owing to good business performance amid strong economic activity and in the public sector due to the implementation of agreements with trade unions and promotions.

Average consumer price growth remained moderate. Prices of services rose faster than that of goods. Food prices again increased, while prices of durable goods were lower year-on-year. Although increasing in recent months, prices of oil products, owing to the high base, have not yet had a visible impact on average inflation movements. Core inflation remained low.

The growth in loans to domestic non-banking sectors eased slightly in the first quarter. The growth in household loans and loans to non-monetary institutions remained strong, while the volume of corporate loans declined. As lending survey data shows no constraints or tightening of lending conditions, this decline could be mainly due to enterprises relying on other sources of finance. Non-performing loans continue to fall gradually.

The general government deficit in the first quarter of 2018 was more than 50% lower year-on-year. Favourable public finance developments are underpinned by still strong year-on-year revenue growth (5.3%) resulting from favourable economic trends. Expenditure remained similar to that of the same period of 2017.

Institute of Macroeconomic Analyses and Development