BANK OF SLOVENIA EUROSYSTEM MONTHLY BULLETIN...Origin of value added: 2008 Agriculture 2.0 % Industry 28.9 % Construction 8.1 % Services 61.0 % Total 100.0 % GDP real annual change

September 2009Vol 18 No. 9

BANK OF SLOVENIA

EUROSYSTEM

MONTHLY

BULLETIN

BANKA SLOVENIJE

2 Monthly Bulletin, September 2009

BANK OF SLOVENIAEUROSYSTEM

Published by: BANKA SLOVENIJESlovenska 35,1000 LjubljanaSlovenija

tel.: +386 (1) 4719000fax.: +386 (1) 2515516E-mail: [email protected]://www.bsi.si/SWIFT: BSLJ SI 2X

Editorial Board:

Printed by: Tiskarna Radovljica d.o.o.

Publication and other public use of data from this publication ispermitted subject to statement of the source.Publication is available on the Web.For PGP key see last page.

ISSN 1318-0770 (print)ISSN 1518-209X (online)

Ta publikacija je na voljo tudi v slovenščini.

Mr. Janez FABIJAN, Vice GovernorMr. Matjaž NOČ, Financial StatisticsMr. Damjan KOZAMERNIK, Analysis and ResearchMr. Tomaž KOŠAK, Financial StabilityMr. Ernest ERMENC,AccountingMr. Neven BORAK, Advisor to the GovernorMrs. Danica PRELOVŠEK, Advisor to the GovernorMr.Franc DRENOVEC, Advisor to the Governor

BANKA SLOVENIJE

3Monthly Bulletin, September 2009


Important information

Monthly Bulletin of Bank of Slovenia has been, from the number 2-3 for February-March 2007, volume 16, partly changed in itscontent and form.

The preannouncement of the change has been published on the web page of the Bank of Slovenia in January 2007.

The main changes are as follows:· The beginning of publishing the statistical data of value, which refer to the period after the entry to the euro area, in the

official domestic currency - euro. The data of value for the previous period will continue to be published in tolars, as theofficial Slovenian currency in that period. The data in euros are in the tables separated from the data in tolars by line.

· The change in the concept of the international monetary reserves because of the entry to the Economic and monetaryunion. Among the Slovenian international monetary reserves after the entry to the euro area, compared to the periodbefore, there are no longer assets in euro as well as the claims on the euro area residents. More explanation is availablein: “The statistical treatment of the international monetary reserves at the entry of Slovenia to the euro area” (slovenian),in the chapter Methodological information on the internet page: http://www.bsi.si/en/financial-data.asp?MapaId=64.

· The change in the presentation of the currency in the circulation to the standards of the euro area.· The accommodation of the balance sheet of Bank of Slovenia to its activities in the framework of the Eurosystem.· The beginning of the publishing of the interest rates of the euro area money market as well as the publishing of the whole

set of the interest rates of the Monetary financial institutions according to the ECB’s methodology.· The beginning of the publishing of the financial accounts statistics in the new chapter.· Colour separation of the individual statistical chapters, to alleviate search and because of the link of the chapters to the

specialised publications.

More information can be found in Methodological Notes in the Bank of Slovenia monthly Bulletin.

The entry to the euro area (on 1.1.2007) caused a break in the time series of the statistical tables in the Monthly bulletin in caseswhere the “currency” is an attribute. An expected reclassification takes place, for example of the stock of outstanding loans ineuros from the time series of “foreign currency” before the introduction to the time series of “domestic currency” after the intro-duction of euro. To enable easier reconstruction of this change, the shares of the Euro amounts in stocks of the foreign currencyin the tables 1.3, 1.4, 1.5 and 1.6 on 31.12.2004, 31.12.2005 and 31.12.2006 are published in the chapter Methodologicalnotes.

BANKA SLOVENIJE



BANKA SLOVENIJE

5Monthly Bulletin, September 2009


TABLE OF CONTENTS

REPUBLIC OF SLOVENIA:General Information

I. ECONOMIC AND FINANCIAL DEVELOPMENTS1. International Environment2. Economic Activity and Labour Market3. Price Developments4. Balance of Payments5. Public Finance6. Banking System7. Domestic Financial Markets

II. STATISTICAL TABLESMoney and Monetary Financial InstitutionsFinancial Markets and Payment SystemsBalance of Payments and External PositionPublic FinanceFinancial AccountsNon-Financial Accounts and General Economic Statistics

III. BANKING INSTITUTIONS IN SLOVENIA

VI. NOTES ON METHODOLOGYReview of the linksAdvance release calendar

6

1-22

132447798694

1

12527

Legend:

-....*/01,2,3,...n.a.

Sums of part figures may differ from totals due to roundings.The data in euros and the data in tolars are separated with line.

no occurencenot availableprovisional or estimatedcorrected dataaveragevalue less than 0.5footnote, explained in Notes Methologynot applicable

BANKA SLOVENIJE



REPUBLIC OF SLOVENIA:

GENERAL INFORMATION

Measured in:Date or period of

data:

Area 20,273 km2 2008Population 2,032,362 number 12.31.2008Population growth 1.1 % 12.31.2008Population density 100.2 number / km2 12.31.2008Population of City Community Ljubljana 276,091 number 12.31.2008

Origin of value added: 2008Agriculture 2.0 % Industry 28.9 %Construction 8.1 %Services 61.0 %Total 100.0 %

GDP real annual change 3.5 % 2008

Industrial production annual change -21.4 % July, 2009Total employment annual change -2.8 % July, 2009Unemployment rate (ILO definition) 5.6 % Apr. - Jun., 2008Annual inflation rate -0.1 % September, 2008

General government:revenue 42.7 % BDP 2008surplus/deficit -0.9 % BDP 2008

Trade balance -104.0 mio EUR Jan. - Jul., 2009BOP current account 59.4 mio EUR Jan. - Jul., 2009International reserves 748.7 mio EUR 08.31.2009Foreign exchange reserves 439.6 mio EUR 08.31.2009Net foreign debt 9,823 mio EUR 07.31.2009Gross foreign debt 38,997 mio EUR 07.31.2009

Currency unit since January 2007: Euro (EUR) 1EUR = 239.64 SIT

BANKA SLOVENIJE

1-I.Monthly Bulletin, September 2009

ECONOMIC AND FINANCIAL DEVELOPMENTSBANK OF SLOVENIA

EUROSYSTEM

I. ECONOMIC AND FINANCIAL

I. ECONOMIC AND FINANCIAL DEVELOPMENTS

1. International Environment2. Economic Activity and Labour Market3. Price Developments4. Balance of Payments5. Public Finance6. Banking System7. Domestic Financial Markets

DEVELOPMENTS

BANKA SLOVENIJE

I.-2 Monthly Bulletin, September 2009

ECONOMIC AND FINANCIAL DEVELOPMENTSBANK OF SLOVENIA

EUROSYSTEM

1

Figures for economic activity in the euro area and the US during the second quarter showed an improvement. The forecasts are also improving, although uncertainty regarding the speed and persistence of economic growth remains high. The quarterly decline in GDP (compared with the first quarter) was down to 1.0% in the US, 0.2% in the EU, and 0.1% in the euro area. The greatest uncertainties concern the labour market, where unemployment rose to 9.5% in the euro area in July and 9.7% in the US in August. After rising in August, oil prices fell again in September. Other commodity prices are increasing in current terms, although year-on-year growth remains negative. The year-on-year fall in prices in August was smaller than in July in both the euro area and the US at 0.2% and 1.5% respectively, but increased again to 0.3% in the euro area in September. The key interest rates of the ECB and the Federal Reserve remained unchanged in September at 1.00% and between zero and 0.25% respectively.

Indicators of economic activity are volatile in Slovenia, but the economic climate is improving. According to seasonally adjusted figures, industrial production in July was up 0.2% in current terms. Despite July’s increase, industrial production over the first seven months of the year was down just over 22% in year-on-year terms. The real value of new orders in industry in July was down 1.9% in current terms and down 23.6% in year-on-year terms. July saw a current decline in the real value of construction work performed for the fourth consecutive month, while it was down over a fifth in year-on-year terms. Activity continued to decline in certain service sectors. After falling for two months, the consumer confidence indicator rose significantly in September, primarily as a result of more optimistic expectations of the economic situation in Slovenia in the next 12 months, while the economic sentiment indicator was also up 3 percentage points in current terms.

Conditions on the labour market continued to deteriorate. The number of registered unemployed stood at 88,106 in August, slightly lower than in July due to seasonal effects, but up more than 45% in year-on-year terms. The registered unemployment rate reached 9.4% in July. Year-on-year growth in the average nominal gross wage slowed in July, partly as a result of the expected slowdown in year-on-year growth in public sector wages due base effects.

Year-on-year inflation as measured by the HICP stood at 0.0% in September, down 0.1 percentage points on August. Current infla-tion and core inflation also fell in September, to -0.1% and from 1.7% to 1.1% respectively. Inflation is expected to gradually rise over the coming months because of a base effect in energy prices, while a further deterioration in the domestic macroeconomic environment could curb price growth.

The improvement in the current account that began more visibly in the second quarter continued in July. July’s current account surplus stood at EUR 42 million, taking the surplus over the first seven months of the year to EUR 59 million. The main factor in this was lower domestic demand, as a result of which merchandise imports are slowing significantly more sharply than exports. Both the gross external debt and gross external claims rose in July, while the net external debt has remained virtually unchanged since last December, standing at EUR 9.8 billion at the end of July.

Slovenia recorded a general government deficit in the amount of EUR 1.1 billion in the first half of the year. The deficit is primarily the product of the state budget, although expenditure is also exceeding revenue at the Health Insurance Institute and in local gov-ernment. General government revenues during the first six months of the year were down more than 7% in year-on-year terms, while growth in general government expenditure remains high at 10.6% as a result of the financing of assumed commitments, the consequences of introducing a new wage system, and crisis-related expenditure. Of the approximately EUR 3.5 billion in govern-ment sector borrowing in the first half of the year, around EUR 2 billion was for financing the deficit and repaying debt, and almost EUR 1.5 billion went to increase assets held on deposit. In the report on the general government deficit and debt, the Ministry of Finance estimates that this year’s general government deficit will rise to 5.9% of GDP, while the general government debt is also expected to rise significantly.

The banking system’s total assets declined by EUR 581 million in August. Banks made net debt repayments to banks in the rest of the world and to the Eurosystem, reduced their claims against banks, and recorded weak lending to non-banking sectors. There was a solid increase in loans to households, while lending to non-financial corporations was more symbolic. Impairment and provi-sioning costs remain a key reason for the banking system’s lower pre-tax profit. Profit over the first eight months of the year was down 45% on the same period last year at EUR 194 million.

The market capitalisation of bonds on the Ljubljana Stock Exchange rose by 0.3% in August, in weak trading. RS66 15-year gov-ernment bonds, with a total face value of EUR 1.5 billion, and Abanka Vipa d.d. government-guaranteed 3-year bonds, with a face value of EUR 500 million, were issued in the first half of September. The market capitalisation of shares on the Ljubljana Stock Exchange declined by 1% in August, primarily as a result of a fall of 0.9% in the SBI 20.

The wording of the Economic and Financial Developments section was approved by the Governing Board of the Bank of Slovenia on 30 September 2009.

ECONOMIC AND FINANCIAL DEVELOPMENTS


BANKA SLOVENIJEBANK OF SLOVENIA

EUROSYSTEM

2

In the international environment, current trends in the second quarter point to an improvement. The quar-terly decline in GDP (compared with the first quarter) was down to 1.0% in the US, 0.2% in the EU, and 0.1% in the euro area. The forecasts for the immediate future are improving, although uncertainty regarding the speed and persistence of economic growth remains high. Among Slovenia’s major euro area export partners, the largest contribution to current GDP growth in France came from a rise in net exports, while in Germany growth was pri-marily fuelled by increased domestic consumption. Confi-dence indicators and the PMI are improving in the major-ity of euro area countries, while the first signs of renewed growth are also being seen in household consumption. Conditions on the labour market continue to worsen. In July unemployment rose to 9.5% in the euro area and 9.0% in the EU overall, and conditions are expected to deteriorate further in the second half of the year, as a result of the typical lag of two to three quarters between the economic cycle and movements on the labour mar-

ket. The current decline in GDP in the US in the second quarter was smaller compared to the first quarter at 1.0%, primarily as a result of a positive contribution from net exports of goods and services, and increased govern-ment spending. The US is nevertheless facing harsher conditions on the labour market, where unemployment rose to 9.7% in August, and a decline in household con-sumption.

Economic growth forecasts for the euro area im-proved slightly in September, while those for the US were unchanged. Consensus’s September growth fore-cast for the euro area was up slightly on August as a re-

1 International Environment

GDPEuro area 2.9 2.7 0.8 -0.1 Q2 * -4.7 Q2 ** -3.9 *** Sept. 2009USA 2.7 2.1 0.4 -1.0 Q2 * -3.9 Q2 ** -2.6 *** Sept. 2009Commodities, USD prices:Primary, total 27.7 18.8 12.2 -18.5 August- industry 46.3 12.7 -7.2 -20.4 AugustFood 11.4 25.9 32.4 -17.1 AugustOil (Brent, USD/barrel) 64.9 72.7 97.6 67.5 SeptemberInflationEuro area 2.2 2.1 3.3 -0.3 SeptemberUSA 3.2 2.9 3.8 -1.5 AugustCentral banks' interest ratesEuro area 3.50 4.00 2.50 1.00 September USA 5.25 4.25 0.00-0.25 0.00-0.25 September

Sources: Bloomberg, Consensus, The Economist, Eurostat, European Commission, Bureau of Economic Analysis (BEA), *** Consensus, September 2009.Notes: * Current GDP growth according to seasonally adjusted data, ** seasonally adjusted data – Eurostat for the euro area, BEA for the US.

% at the end of period

International Environment

annual growth rates, %

2006 2007 2008 projections2009

-3

-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

2006 2007 2008 2009

euro area euro area core*USA USA core**

Inflationy-o-y in %

Source: Eurostat, U.S. Department of Labor.

* excl. energy and unprocessed food** excl. energy and food

ECONOMIC AND FINANCIAL DEVELOPMENTS BANKA SLOVENIJE



3

sult of better-than-expected figures, while the European Commission’s forecasts were unchanged. The Consen-sus forecast for the euro area stands at -3.9% (compared with -4.0% from the European Commission), while its forecast for the US remains unchanged at -2.6%.

After rising in August, oil prices fell again in Septem-ber, while other commodity prices are currently ris-ing, although they are still down in year-on-year terms. A barrel of Brent crude averaged USD 67.53 in September, compared with USD 72.36 in August. The fall in September’s oil prices was primarily the result of weaker-than-expected economic figures in the US and a fall in stock markets in China. The year-on-year change in US dollar prices of commodities other than oil fluctu-ated around -18% in August, having been around -30% in the preceding three months. Commodity prices rose in current terms in August, primarily as a result of a rise in food prices. Prices of gold and other precious metals con-tinued to rise in September. The rise in gold prices is pri-marily linked to the weak performance on equity markets, which is encouraging investors to turn to gold as an alter-native source of returns.

The year-on-year fall in prices in August was smaller than in July in both the euro area and the US, but increased again in the euro area in September. Year-on-year inflation as measured by the HICP stood at -0.2% in the euro area in August, compared with -0.7% in July. August’s change in year-on-year inflation was pri-

marily the result of a base effect in energy prices, which began to fall rapidly in August 2008 after rising sharply over the first seven months of last year. Year-on-year core inflation expressed as the index of price growth ex-cluding energy and unprocessed food remained un-changed at 1.2% in August. Prices in the euro area fell by 0.3% in September, according to initial Eurostat esti-mates. Year-on-year inflation in the US stood at -1.5% in August, up from -2.1% in July. In contrast to headline inflation, year-on-year core inflation as measured by prices excluding energy and food was down 0.1 percent-age points in August at 1.4%. Base effects in energy prices were the main factor in the movement of industrial producer prices on the domestic market in both the euro area and the US. Prices of manufactured goods were down 8.5% in year-on-year terms in the euro area in July, but were up 1.7% in the US in August.

The euro rose against the US dollar during Septem-ber. The euro averaged USD 1.4268 in August, and USD 1.4562 in September. Some analysts believe that one reason for the US dollar’s slide against the euro could be the repeated statements by representatives of certain central banks (primarily China, Russia and countries in the Middle East) that they are likely to diversify their for-eign exchange reserves, primarily by making relative re-ductions in US dollar holdings. The key interest rates of the ECB and the Federal Reserve again remained un-changed in September at 1.00% and between zero and 0.25% respectively.

Real sector

According to seasonally adjusted figures, industrial production in July was up 0.2% in current terms; also positive was the average current rate of growth over the preceding three months. Industrial production over the first seven months of the year was neverthe-less down over a fifth in year-on-year terms. The larg-est decline was recorded by the manufacturing sector,

2 Economic Activity and Labour Market

20

40

60

80

100

120

140

160

100

150

200

250

300

350

400

450

2006 2007 2008 2009

oil North Sea Brent (in USD; left)commodities (index 2000 = 100)of which: industry (index 2000 = 100)food (index 2000 = 100)

Commodities

Source: The Economist, Bloomberg.




EUROSYSTEM

4

where output in the first seven months of the year was down 23.5% in year-on-year terms. The only current de-cline in industrial production in July was recorded by the electricity, gas and steam supply sector (3.6%), while manufacturing and mining recorded positive growth. Ac-cording to figures adjusted for the season and the num-ber of working days, the average current rate of growth in industrial production for the preceding three months was positive in July, the first such rise since last October. Real revenues in industry in July were down 1.6% on June, while revenues over the first seven months of the year were down 22.2% in year-on-year terms. The real value

of new orders received in July was down 1.9% in current terms, orders from the domestic market rising by 17.5%, and orders from the foreign market falling by 5.4% as a result of a decline of 12.8% in orders from the euro area. New orders in July were down 23.6% in year-on-year terms. Industrial inventories are declining simultaneously with the decline in orders. According to provisional figures adjusted for the season and the number of working days, inventories were down 6.0% in year-on-year terms and 1.7% in current terms in July. Overall inventories in the first seven months of the year were up 0.3% in year-on-year terms.

2008 2008 2009 2009 Jan.-Jul. Jul. Jan.-Jul. Jul.

Industrial production * 5.7 7.2 2.5 6.6 2.0 -22.4 -20.1 Inventories 1.9 7.7 5.9 7.0 2.5 0.3 -5.9 Productivity in manufacturing 7.1 6.1 2.9 6.2 2.2 -14.8 -9.8 Construction: – total ** 15.7 18.5 15.7 21.9 15.8 -19.3 -20.5 - Buildings 17.1 14.3 11.5 16.6 0.2 -21.6 -23.3 - Civil engineering 14.6 21.9 18.9 26.1 28.0 -17.6 -19.0 Trade (turnover)Total retail trade 2.7 6.1 12.2 14.6 13.4 -9.3 -11.9 Retail trade except automotive fuel 1.5 5.5 5.1 6.0 7.6 -4.5 -5.9 - Food, beverages, tobacco -2.7 -1.0 6.3 5.5 7.4 -1.3 -2.9 - Non-food (except automotive fuel) 6.6 12.3 4.0 6.6 7.8 -7.5 -8.8 Retail trade and repair of motor vehicles 17.8 19.2 6.2 14.8 12.3 -26.1 -25.9 Tourism (overnights) 2.0 7.0 1.8 2.7 3.6 -2.8 -0.8

Sources: SORS, Eurostat, Bank of Slovenia calculations.Notes: Differences from official numbers are due to rounding. Data are unadjusted for seasonal and working days effects. * Volume of industrial production. ** Real value of construction put in place.

Economic Activity

annual real growth in % based on unadjusted data

2006 2007 2008

50

60

70

80

90

100

110

120

130

140

195

200

205

210

215

220

225

230

235

240

2006 2007 2008 2009

industry – totalmining and quarryingmanufacturing activitieselectricity, gas, steampersons in employment in industry, in thousand, rhs

*seasonally and working days adjusted datareal indices, 2005 = 100*

Volume of production and employment in industry

Source: SORS, Bank of Slovenia calculations.

3-month moving averages0

20

40

60

80

100

0

50

100

150

200

250

2006 2007 2008 2009

value of const. put in place – residential buildingsvalue of const. put in place – non-resid. buildingsvalue of const. put in place – civil engineering value of const. put in place – totalpersons in employment in construction, rhs

Construction


seasonally adjusted real indices, 2005 = 100 in thousand

3-month moving averages




5

July’s current decline in activity in the construction sector was the fourth consecutive monthly decline. The real value of construction work performed in July was down 20.6% in year-on-year terms and down 4.6% in current terms. Of this, the value of building work was down 9.8% on June, and down 23.3% in year-on-year terms. The smaller number of building permits issued, the decline in the value of new contracts and the stock of existing contracts, and the fall in prices and the number of transactions made in new-build housing all point to the negative trends continuing for the remainder of the year.

Economic activity in certain service sectors also fell in July. Signs of the deterioration in conditions on the labour market throughout the wider economic environ-ment continue to be seen in the tourism sector, where revenues and overnight stays in July were both down 5% in year-on-year terms, and the number of overnight stays during the first seven months of the year was down 4% in year-on-year terms. The negative trends are also continu-ing in the transport sector, where the quantity of mer-chandise moved at ports and at the airport was down 13% and 29.2% respectively, and the number of passen-gers carried by road and by air was down 15.8% and 9.1% respectively. The number of new motor vehicle reg-istrations was down 15.6% in year-on-year terms in June.

The seasonally adjusted economic sentiment indica-tor was up 3 percentage points in current terms in September, but remained well down in year-on-year

terms and on its long-term average. The manufacturing confidence indicator was up 3 percentage points in cur-rent terms. The largest improvement among the indica-tors of expectations for the coming three months was recorded by total demand expectations, which was up 19 percentage points, followed by export expectations (up 15 percentage points) and output expectations (up 12 percentage points). The seasonally adjusted retail confi-dence indicator remained at its level of the previous month, significantly down on its long-term average, and down 34 percentage points on the same month last year. The services and construction confidence indicators were up slightly in current terms in September, by 4 percent-age points and 1 percentage point respectively, new lows being recorded by employment expectations in the con-struction sector and expected sales prices in the service sector. The majority of companies surveyed in both sec-tors again cited insufficient demand as the main limiting factor.

After declining for two months, the consumer confi-dence indicator rose in September, by 8 percentage points. September’s seasonally adjusted consumer con-fidence indicator was nevertheless still down 4 percent-age points in year-on-year terms. Consumer confidence has been slowly improving since May, having reached record lows during the early months of this year. Septem-ber’s largest improvements were in the indicators of ex-pectations of the economic situation in Slovenia, and ex-pectations of the household financial situation for the next 12 months, which were up 11 percentage points and 6 percentage points in current terms respectively.

Labour market

The number of registered unemployed recorded a seasonal decline in August, but the seasonal effect was significantly weaker than in previous years. The number of registered unemployed was down 351 on July, compared with the average August decline of more than 1,600 between 2006 and 2008. The number of people moving from unemployment to employment was up 16% in current terms in August, the year-on-year change re-maining positive for the fifth consecutive month. The number of newly registered unemployed was down sig-nificantly on previous months, but was up approximately

-60

-50

-40

-30

-20

-10

0

10

20

30

40

-60

-50

-40

-30

-20

-10

0

10

20

30

40

2006 2007 2008 2009

consumerstotal economymanufacturing activitiesretail tradeservicesconstruction

Confidence indicatorspoints of balance, seasonally adjusted

Source: SORS.




EUROSYSTEM

6

one-third on the August average between 2006 and 2008. There were 88,106 registered unemployed at the end of August, up over 45% on a year earlier, while the current increase in the number of registered unemployed remained at the July level according to seasonally ad-justed figures. The registered unemployment rate was 9.4% in July according to the latest figures, up 0.3 per-

centage points on June. The harsher conditions on the labour market are also being reflected in the number of claimants of unemployment allowance and social assis-tance, which was up 107% in year-on-year terms at 28,882 in July.

July’s decline in the workforce in employment was

-140-120-100-80-60-40-20

020406080

100120

-8-7-6-5-4-3-2-1012345

2006 2007 2008 2009

persons in employment – private sector, rhspersons in employment – public sector, rhs*removed from the reg. unempl. due to employmentnewly registered unemployed persons

Labour markety-o-y changes, %

Source: SORS, Employment Service of Slovenia, Bank of Slovenia

*activities O..R

-40-35-30-25-20-15-10-505

10152025303540

2006 2007 2008 2009

persons in employment – totalpersons in employment – manufacturingregistered unemployed

Persons in employment and in registered unemployment

Source: SORS, ESS, Bank of Slovenia calculations.

y-o-y changes in thousand

2008 2009 2008 2009 Jan.-Jul. Jan.-Jul. Jul. Jul.

Average gross wage 1,212 1,284 1,391 1,351 1,416 1,372 1,424

Average net wage 5.1 7.9 7.9 7.9 4.6 8.1 3.6 Average gross wage 4.8 5.9 8.4 8.3 4.9 8.6 3.8 - Private sector (excl. O..R)* 5.4 6.7 8.0 8.9 2.1 10.0 2.0 - Public sector (O..R)* 3.4 4.1 9.8 6.7 11.2 5.6 7.3 Real wage** 2.3 2.3 2.4 1.4 3.7 1.6 4.4 Unemployment rate - Unemployment rate (Eurostat) 6.0 4.9 4.4 4.5 5.6 4.2 5.8 - Registered unempl. rate (SORS) 9.4 7.7 6.7 6.8 8.7 6.5 9.4

Persons in employment 824.8 854.0 879.3 875.8 863.7 879.9 855.6 Persons in paid employment 741.6 766.0 789.9 786.5 773.7 791.1 764.5

Persons in employment 1.4 3.5 3.0 3.2 -1.4 3.0 -2.8 Persons in paid employment 1.4 3.3 3.1 3.5 -1.6 3.1 -3.4 Sectors: - Private (excl. O..R)* 1.3 4.0 3.4 3.9 -2.5 3.7 -4.7 - Public (O..R)* 1.5 0.5 2.0 2.0 1.9 1.7 2.4

Sources: Statistical Office of the Republic of Slovenia, Bank of Slovenia calculations.Notes: * Sections of NACE Rev. 2 classification. ** CPI deflator.

annual growth in %

EUR

thousands

Labour Market

annual growth in %

2006 2007 2008




7

significantly sharper than in June and May, primarily as a result of the seasonal layoff of temporary em-ployees. Workforce in employment fell by 0.4% in July (3,473), by 0.3% in May and by 0.2% in June, but the change remained at the level of the preceding two months according to the seasonally adjusted figures. The largest contribution to the current decline, of approxi-mately two-fifths, came from manufacturing, where the decline in employment was one-tenth larger than in July 2008, although the negative trend slowed for the third consecutive month. A fall in employment in the education sector is a seasonal norm, and it accounted for just under one-third of the total decline in the workforce in employ-ment. Employment also fell by more than 200 in the sec-tors of construction, trade and motor vehicle maintenance and repair, and transportation and storage, where a cur-rent decline in employment has been seen since last au-tumn. The workforce in employment was down 24,254 or 2.8% in year-on-year terms in July.

Year-on-year growth in the average nominal gross wage stood at 3.8% in July, its lowest rate of the year, in which the slowdown in year-on-year growth in pub-lic sector wages was a major factor. It stood at 7.3% in July, having slowed for the third consecutive month. There was also a base effect in July’s decline, as there was no scheduled wage increase during the month as a result of low inflation and the tight public finance position this year. Wage growth in the public sector in the first seven months of the year nevertheless remained high in

year-on-year terms at just over 11%. Wage growth in the private sector stood at 2.0% in July, down slightly less on June than in public sector, thus remaining at level with the average rate for the first seven months of the year. After a significant current decline in wages in the private sector in January and February, the current rate of growth has been positive overall during the rest of the year, but is continuing to slow as measured by the 12-month moving average. The year-on-year decline in wages in the sectors of manufacturing and financial and insurance activities seen in the second quarter of this year did not continue in July.

Selected competitiveness indicators

In August the harmonised index of the nominal effec-tive exchange rate depreciated in current terms for the second consecutive month, slightly mitigating this year’s previous growth. The nominal effective ex-change rate of the euro against the basket of foreign cur-rencies fell by 0.03% in current terms in August. This was primarily the result of the euro’s fall against EU currencies outside of the euro area. The largest falls were against the Swedish krona (5.6%) and the Polish zloty (3.9%). The euro rose against other major currencies: 1.7% against the Japanese yen, 1.3% against the US dollar, and 0.2% against both the Swiss franc and the pound sterling. The year-on-year appreciation in the euro’s har-monised nominal effective exchange rate index rose from 0.6% in July to 1.2% in August. The price competitiveness indicator of the Slovenian

-5

-4-3

-2

-10

1

2

34

5

-5

-4-3

-2

-10

1

2

34

5

2006 2007 2008 2009

difference in price growthreal – HICPnominal

Harmonised competitiveness indicators(41 countries and 15 euro area countries)

y-o-y growth in %

Source: ECB.

-2

0

2

4

6

8

10

12

14

16

-2

0

2

4

6

8

10

12

14

16

2006 2007 2008 2009

totalmanufacturing activitiespublic sector (activities O..R)private sector

Nominal gross wages

y-o-y growth in %, 3-month moving averages





EUROSYSTEM

8

economy as measured by consumer prices has con-tinued to track the year-on-year changes in the nomi-nal effective exchange rate. August’s year-on-year appreciation was the same as that of the nominal effective exchange rate. The price competitiveness indi-cator appreciated by 0.04% in current terms. The year-on-year appreciation rose from 0.4% in July to 1.2% in August. The price competitiveness indicator of the Slove-nian economy recorded the same year-on-year apprecia-tion as the nominal effective exchange rate index, mean-ing that domestic prices rose at the same pace as the basket of foreign prices in August.

The indicators of the price competitiveness of the economy also appreciated in the majority of Slove-nia’s most important trading partners (Germany, France, Austria and Italy) in August. The monthly ap-preciation in Germany was lower than in Slovenia at 0.03%, and higher in Italy and France at 0.1%. Austria recorded a depreciation of 0.03%. The indices of the real effective exchange rate as measured by the HICP or CPI in Slovenia’s most important trading partners also moved in the same direction in year-on-year terms, although the appreciation was less than in Slovenia (averaging 0.7%), with the exception of France, where there was a year-on-year depreciation of 0.1% in August.

Although Slovenia recorded the highest year-on-year appreciation of the real effective exchange rate, its competitive position in August improved relative to

the main trading partners. The year-on-year apprecia-tion in Slovenia in August was up 0.8 percentage points on July, while the other trading partners, with the excep-tion of France, shifted from depreciation to appreciation. In France the depreciation was down 1.5 percentage points in year-on-year terms at 0.1%, while in the other main trading partners the gap between depreciation and appreciation averaged 1.1 percentage points. The year-on-year appreciation in August ranged from 0.6% to 1.0% in Germany, Italy and Austria. That the deterioration in the year-on-year indicator of price competitiveness in Slovenia was smaller than in the main trading partners was a reflection of slower year-on-year growth in domes-tic prices relative to the basket of foreign prices in Slove-nia than in the other countries, assuming that the nominal effective exchange rate had the same effect.

Year-on-year inflation as measured by the HICP stood at 0.0% in September, down 0.1 percentage points on August. Current inflation and core inflation also fell. The decline in year-on-year inflation was primarily the result of lower growth in services prices and prices of non-energy industrial goods. Growth in the latter was down 1.0 percentage points in September, primarily as a

92

94

96

98

100

102

104

106

108

110

112

92

94

96

98

100

102

104

106

108

110

112

2006 2007 2008 2009

SloveniaAustriaItalyGermanyFrance

index 1999 Q1 = 100

Harmonized price competitiveness indicator(41 countries and 15 euro area countries)

Source: ECB.

HCIs are deflated with HICP for EU countries and CPI for all other countries.

HCIs are deflated with HICP for EU countries and CPI for all other countries.

-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

2006 2007 2008 2009

SloveniaAustriaItalyGermanyFrance

y-o-y growth, %

Harmonised price competitiveness indicator(41 countries and 15 euro area countries)

Source: ECB.

3 Price Developments




9

result of a fall in car prices (new and used), and a lower increase in prices of clothing and footwear compared with the same month last year. The largest falls in services prices, growth in which was down 0.4 percentage points on August, were recorded by package holidays, accom-modation and food services, and hospital services. Growth in food prices recorded a smaller decline of 0.2 percentage points, which was primarily the result of a fall in prices of fruit and vegetables, while growth in prices of processed food was almost unchanged. Year-on-year growth in energy prices was up 2.3 percentage points on August, primarily as a result of base effects from last year, when oil prices started to decrease after August.

The fall in core inflation continues to reflect the con-ditions in the domestic macroeconomic environment. Growth in the harmonised index of prices excluding en-ergy, food, alcohol and tobacco was down 0.7 percent-age points from August to stand at 0.7% in year-on-year terms in September. The slowdown in the index is a re-flection of a decline in growth in prices of both non-energy industrial goods and services. Core inflation as measured by the index of prices excluding energy and unprocessed food also fell in September, from 1.7% to 1.1%.

Prices of manufactured goods on the domestic mar-ket continue to fall in year-on-year terms, in line with

0

1

2

3

4

5

0

1

2

3

4

5

2006 2007 2008 2009

Sloveniaeuro area

year-on-year rate, %

HICP excluding energy, food, alcohol and tobacco

Source: Eurostat, Bank of Slovenia calculations.

HICP 0.1 0.0 1.3 0.0 -0.1 services 3.0 2.6 3.8 -1.1 -1.5 industrial goods excluding energy -0.5 -1.5 1.1 2.2 1.2 food 1.6 1.4 2.6 0.4 0.2 energy -7.3 -5.0 -6.4 -2.0 0.4 Core inflation indicatorsexcluding energy 1.4 0.9 2.6 0.4 -0.1 excluding energy, food, alcohol, tobacco 1.4 0.7 2.5 0.3 -0.3 PPI Jul.09 Aug.09 Aug.08 Aug.09 total -3.0 -3.3 0.5 0.4 0.1 domestic -1.3 -1.7 1.5 0.2 -0.1 non-domestic -4.7 -4.9 -0.4 0.6 0.4

Sources: SORS, Eurostat, Bank of Slovenia calculations. Note: Figures may not sum up to official figures due to rounding.

monthly growth, %

Price Developments Average of last 12 months Aug.09 Sep.09 Sep.08 Sep.09

y-o-y growth, %

-1

0

1

2

3

4

5

6

7

-1

0

1

2

3

4

5

6

7

2006 2007 2008 2009

HICP – SloveniaHICP – euro area

y-o-y growth in %

Inflation

Source: Eurostat.




EUROSYSTEM

10

the weak demand for manufactured goods, while commodity prices on global markets are rising slowly. Prices of manufactured goods were down 1.7% in year-on-year terms in August, compared with a fall of 1.3% in July. Energy prices and prices of consumer non-durables were the main factors in the continuing year-on-year fall in prices of manufactured goods. Growth in en-ergy prices fell from 6,8% in July to 5,7% in August, the fall being most notable in the supply of electricity, gas and steam. Among consumer non-durables, prices of which fell by 3.4% in August (compared with a fall of 1.8% in July), the largest fall was recorded by the manu-facture of beverages and by printing and reproduction of recorded media. The increasing growth in commodity prices on global markets is being reflected in a rise in

commodity prices on the domestic market, while growth in prices of capital goods remained almost unchanged from the previous month. Euro area prices of manufac-tured goods fell by 8.5% in year-on-year terms in July, 2.0 percentage points more than that recorded in June. The main factors in the continued fall in prices were en-ergy prices and prices of intermediate goods, which in July were down 20.2% and 7.5% respectively.

After rising in August, inflation again fell also in the euro area in September. Prices in the euro area fell by 0.3% in year-on-year terms in September, 0.1 percentage points more than in August. The 12-month average of growth in the HICP in Slovenia stood at 1.3% in Septem-ber, while the Maastricht price stability criterion calculated in August stood at 1.7%. Internal factors made the largest contribution to September’s fall in inflation in Slovenia, in particular lower wage growth and the decline in private consumption, which is making it hard for providers of goods and services to raise prices. Energy prices are the sole component of the HICP whose contribution is in-creasing, which is in line with oil prices on global markets and a base effect from last year. Inflation is expected to gradually rise over the rest of the year because of energy prices, while a further deterioration in conditions in the domestic macroeconomic environment could curb price growth.

Current account

The improvement in the current account that began in the second quarter continued in July. A current ac-count surplus of EUR 42 million was generated, taking the surplus over the first seven months of the year to EUR 59 million, compared with a deficit of EUR 1.3 billion in the same period last year. With merchandise trade recording a relatively small deficit, the main factors in July’s current account surplus were the surpluses in trade in services and transfers. This year’s movements have also brought an improvement in the long-term indicators,

4 Balance of Payments

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

2006 2007 2008 2009

Maastricht price stability criterion Slovenia

12-month average of year-on-year HICP rates, %

Maastricht price stability criterion

Source: Eurostat, Bank of Slovenia calculations.

-10-8-6-4-202468

10121416

year-on-year growth, %

-10-8-6-4-20246810121416

2006 2007 2008 2009

intermediate goodscapital goodsconsumer goodsenergytotal

Output price indices – total





11

the 12-month current account deficit declining to 2.7% of GDP, down more than a half on 2008, when the largest-ever deficit of 6.2% of GDP was recorded.

The current rate of growth in merchandise exports, which plummeted over the first four months of the year, has shown slow but persistent growth since May. The current rate of growth in merchandise im-ports was also positive in July. The current rate of growth in merchandise exports stood at 0.9% in July, while the rate for merchandise imports was 0.4%. Despite the relatively favourable current dynamic, the year-on-year decline in merchandise trade deepened slightly in July, partly as a result of the slightly higher basis last July. Merchandise exports amounted to EUR 1.4 billion in July, down 22.5% on the same month last year, the rate remaining ahead of that of merchandise imports by more than 9 percentage points, as they declined by 31.8% to EUR 1.4 billion. The result of these movements in mer-chandise trade was a deficit of EUR 12 million, and a total deficit of EUR 104 million over the first seven months of the year,1 just one-fourteenth of that recorded in the same period last year.

The decline in merchandise trade in the first seven months of the year was just over one-third faster on the import side than on the export side. Merchandise exports in the first seven months of the year were down

23.0% in year-on-year terms, while merchandise imports were down 30.4%. Exports to EU Member States during the first seven months of the year were down slightly less than average (by 22,9%, compared with a decline of 23.1% recorded by non-EU countries), while the situation was reversed on the import side: imports from EU Mem-ber States were down 31.1% in year-on-year terms, com-pared with a decline of 28.0% recorded by non-EU coun-tries. As a result of these movements, the merchandise trade deficit narrowed in year-on-year terms by EUR 1,440 million to EUR 330 million. There was a year-on-year narrowing in the merchandise trade deficit with EU Member States, while the surplus with non-EU countries widened slightly in year-on-year terms by EUR 11 million to EUR 604 million. Coverage of merchandise imports by exports rose by around 9 percentage points compared with the same period last year to stand at 96.6%.

Output-related demand from the rest of the world recorded the largest year-on-year decline in the first half of the year, as a result of the decline in economic activity in Slovenia’s most important trading part-ners. The largest year-on-year decline in the first half of the year was recorded by exports of intermediate goods (down 29.4%), while exports of capital goods were down 18.1%. Exports of consumer goods recorded the smallest decline, of 14.5%, partly as a result of the lower basis last year.

-8-7-6-5-4-3-2-1012345

-8-7-6-5-4-3-2-1012345

2006 2007 2008 2009

current accountgoodsservicesincome and transfers

Components of current account

12-month moving sum, GDP %

Source: Bank of Slovenia.

-5.0-4.5-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5

-5.0-4.5-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5

2006 2007 2008 2009

totaleuro areaoutside euro area

Goods trade balance

EUR billions, 12-month moving sum


1 According to the SORS figures (fob for exports, cif for imports), and excluding any adjustments in coverage (explained in the Methodological Notes appendix to the bulletin), the merchandise trade deficit over the first seven months of the year stood at EUR 330 million.




EUROSYSTEM

12

On the import side, the largest year-on-year declines in the first half of the year were recorded by merchan-dise imports associated with domestic consumption. The largest year-on-year decline (34.1%) was recorded by imports of capital goods, which was just slightly larger than the decline of 33.9% in imports of intermediate goods. These movements were in line with the dynamic in foreign demand and domestic industrial production in the first half of the year. Imports of consumer goods were down 18.7% in year-on-year terms, in the context of a smaller decline in household consumption.

In addition to lower foreign demand, price factors also had a profound impact on the nominal move-ments in Slovenia’s merchandise trade in the first half of this year. The indices of the average value of merchandise imports and exports have shown a sharp

decline since the final quarter of last year. In the first half of the year the index of the average value of merchandise imports was down 8.5% in year-on-year terms, while that of exports was down 3.9%, the terms of trade thus im-proving by 5.0% in year-on-year terms. The main factor in the improvement in the terms of merchandise trade in the first half of the year was the movement in energy prices, commodity prices and food prices.

Trade in services in the first seven months of the year was also down in year-on-year terms, but by less than merchandise trade. In contrast to the move-ments in merchandise trade, the year-on-year decline in exports of services was greater than that of im-ports. Exports of services were down 15.9% in year-on-year terms, while imports of services were down 11.8%. Despite these movements trade in services remained in

last 12 2008 2009 2008 2009 months. Jan.-Jul. Jan.-Jul. Jul. Jul.

Current account -1,455 -2,287 -969 -1,258 59 -347 42 % of GDP -4.2 -6.2 -2.7 -5.8 0.3 … … Goods and services -473 -1,041 46 -487 601 -138 90 % of GDP -1.4 -2.8 0.1 -2.3 3.0 … … Openness coefficient 141 138 122 142 114 … … Exports 24,089 25,089 21,813 15,109 11,834 2,325 1,832 % of GDP 69.9 67.6 60.9 70.0 58.3 … … Goods 19,798 20,048 17,230 12,242 9,423 1,809 1,401 Services 4,291 5,040 4,583 2,867 2,410 516 431 - Tourism 1,811 1,932 1,828 1,092 988 237 212 - Transportation 1,259 1,437 1,188 854 605 133 91 Imports -24,562 -26,130 -21,767 -15,596 -11,233 -2,463 -1,742 % of GDP -71.3 -70.4 -60.7 -72.2 -55.3 … … Goods -21,464 -22,698 -18,564 -13,661 -9,527 -2,071 -1,413 Services -3,098 -3,431 -3,202 -1,935 -1,706 -391 -329 - Tourism -831 -894 -909 -482 -497 -145 -144 - Transportation -734 -846 -689 -518 -361 -78 -48 Labour income 78 -4 -2 -14 -12 -2 -2 Investment income -786 -1,035 -863 -609 -437 -212 -57 Current transfers -274 -206 -150 -148 -92 5 12

Exports of Goods and Services 16.9 4.1 -13.7 8.5 -21.7 6.5 -21.2 Imports of Goods and Services 18.3 6.4 -17.2 12.3 -28.0 13.0 -29.3 Exports of Goods 16.3 1.3 -15.9 6.0 -23.0 3.9 -22.5 Imports of Goods 18.1 5.7 -18.9 11.6 -30.3 13.2 -31.8 Exports of Services 20.1 17.5 -4.1 20.6 -15.9 16.5 -16.4 Imports of Services 20.1 10.8 -5.5 17.8 -11.8 12.3 -15.9


nominal year-on-year growth in %

flows in EUR millions

Balance of Payments 2007 2008




13

surplus this year, although the surplus narrowed by EUR 228 million in year-on-year terms to EUR 705 million. On the export side, revenues from communications services were up 3.3% in year-on-year terms, while revenues from other business and technical services were up just over 1%. Revenues from construction and assembly work were down just over one-third in year-on-year terms, while the corresponding expenditures were just 38% of those recorded in the same period last year, which is related to the sharp decline in foreign and domestic in-vestment. Transport services, which depend strongly on movements in merchandise trade, were down around 30% on both the revenue and expenditure sides. The main factors in imports of services declining by less than exports were the year-on-year increases in imports of tourism services (3%), financial services (more than 50%), computer and information services (about 20%) and intellectual property services (about 20%). Tourism revenues during the first seven months of the year were down 9.5% in year-on-year terms, in the context of de-clines of 10% in the number of arrivals by foreign visitors and 11% in the number of overnight stays. Of Slovenia’s most important trading partners, only the number of visi-tors arriving from Italy increased, by 3%, while the num-bers arriving from Austria, Germany and France declined by 4%, 15% and 17% respectively. Ignoring certain new EU Member States and the former Yugoslav republics, the number of visitors arriving from other countries is also declining this year.

The total deficit in factor income and transfers in-creased by EUR 47 million in July, taking the cumula-tive deficit in the last 12 months to about EUR 1.0 billion, or 2.8% of estimated GDP during this period. The net outflow of labour income during the first seven months of the year amounted to EUR 12 million. A net outflow of capital income also remains, but it is much smaller than in the previous two years due to debt repay-ment by banks and lower interest rates. The change in the sectoral structure of the external debt, the debt repay-ments by banks and the borrowing by the government sector will only be reflected in interest payments from next year onwards. The deficit in capital income widened by EUR 57 million in July to EUR 437 million, or 1.2% of estimated GDP during the period. On the inflow side of capital income, the sole increase was in income from FDI (up 36.2%), while income from investments in securities declined by 17.0% and the largest decline of around 40% was recorded by income from interest on loans made to the rest of the world. On the outflow side, the largest de-cline was similarly in interest payments to the rest of the world, down 45.9%, interest payments by domestic banks declining by 49.5%. There was a net inflow of transfers in the amount of EUR 11.7 million in July, two-thirds of the surplus coming from net official transfers, the remainder from private transfers. The deficit in transfers over the first seven months of the year was down EUR 56 million in year-on-year terms at EUR 92 million.

Capital and financial account

In the first half of the year in particular the financial turmoil and weak economic activity resulted in de-creased financing of the private sector in the rest of the world, which was primarily offset by government borrowing in the rest of the world. The decline in pri-vate sector financing in the rest of the world, which began at the end of last year, deepened in the first half of this year. In net terms the private sector actually made debt repayments in the first half of the year, its net financial outflow rising from EUR 917 million in the first quarter to EUR 1,626 million in the second quarter, or from EUR 306 million to EUR 542 million in terms of the monthly average each quarter. In July the private sector recorded a significant net financial inflow for the first time this year,

-15

-10

-5

0

5

10

2006 2007 2008 2009-15

-10

-5

0

5

10

total exportstotal importsterms of trade euro areaterms of trade totalterms of trade non-euro area

External trade unit value indices

y-o-y growth in %

Source: SORS.




EUROSYSTEM

14

in the amount of EUR 284 million. The private sector’s financial outflow, which to a great extent was the result of debt repayments to the rest of the world by banks, was primarily offset in the first half of the year by a net finan-cial inflow into the government sector. This amounted to EUR 440 million in the first quarter and EUR 1,163 million in the second quarter, the majority of which was the result

of government bond issues in February and April. The government helped banks with their funding in this man-ner, as they were having difficulty accessing funding in the rest of the world.

The private sector’s external claims and liabilities have both declined since the onset of the turmoil last September, although claims have been considerably more volatile than liabilities, particularly since the beginning of this year. Claims against the rest of the world declined by EUR 324 million in the first quarter, but increased by EUR 165 million in the second quarter. The private sector’s claims against the rest of the world also increased notably in July, by EUR 1,285 million. The de-cline in the private sector’s liabilities to the rest of the world was significantly more rapid, the downward trend continuing for three consecutive quarters. Liabilities de-clined by EUR 1,241 million in the first quarter of this year, and by EUR 1,462 million in the second quarter. Volatility has also been seen in the last three months in the private sector’s liabilities to the rest of the world. After declining for several consecutive months, they increased by EUR 508 million in May, and then by a further EUR

last 12 2008 2009 2008 2009 months. Jan.-Jul. Jan.-Jul. Jul. Jul.

1. Private sector -2,492 1,427 -1,754 921 -2,260 258 284 Claims -9,400 -1,912 233 -3,271 -1,126 -61 -1,285 Capital transfers -365 -307 -277 -132 -102 -20 -16 Outward FDI -1,319 -932 -691 -690 -449 -116 4 Portfolio investments -3,705 377 1,160 -469 314 63 -517 Trade credits -394 -142 583 -671 54 16 -6 Loans -1,890 -541 -258 -136 146 255 -57 Currency and deposits -1,728 -367 -284 -1,171 -1,089 -258 -693 - Households -802 -737 -799 -488 -549 -133 -57 - Banks -871 442 284 -505 -662 -99 -638 - Enterprises -55 -72 230 -179 123 -26 2 Liabilities 6,908 3,339 -1,987 4,192 -1,134 319 1,569 Capital transfers 188 185 157 98 69 11 8 Inward FDI 1,050 1,313 498 788 -27 241 -73 Portfolio investments 94 -137 913 63 1,113 3 1,408 Trade credits 511 -65 -1,070 529 -476 39 -8 Loans 3,883 1,897 -2,114 2,248 -1,763 115 13 - Enterprises 529 670 635 321 287 85 27 - Banks 3,355 1,227 -2,750 1,927 -2,050 30 -14 Deposits at banks 1,182 147 -370 467 -50 -90 221 2. Government 900 765 1,654 729 1,618 -4 15 3. Bank of Slovenia 3,639 59 33 18 -8 -22 -284

Source: Bank of Slovenia.Signs: inflows or increases in liabilities (+), outflows or increases in claims (-).

Financial and Capital Account 2007 2008

flows in EUR million

-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.54.0

directinvestment

portfolioinvestment

tradecredits

loans deposits

1-7 20071-7 20086-12 20081-7 2009

Liabilities towards the rest of the world

flows in EUR billion





15

1,569 million in July.

The main factor in the increase in the private sector’s claims against the rest of the world in the second quarter was an increase in FDI and household depos-its in the rest of the world, while there was also a sharp increase in portfolio investments in July. Out-ward FDI amounted to EUR 325 million in the second quarter, and household deposits in the rest of the world to EUR 249 million. Outward portfolio investments, which declined by EUR 431 million in the first quarter and EUR 400 million in the second quarter, increased by EUR 517 million in July, which alongside the increase of EUR 638 million in bank deposits in the rest of the world was the main factor in July’s increase in claims.

The main factor in the decline in the private sector’s liabilities against the rest of the world in the first half of the year was the decline in loans to banks. Loans to banks from the rest of the world declined by EUR 601 million in the first quarter, and by a further EUR 1,436 million in the second quarter. Among the private sector’s major financial liabilities to the rest of the world, only cor-porate loans from the rest of the world remained in net inflow, in the amount of EUR 100 million in the first quar-ter and EUR 160 million in the second quarter. On the liability side, after several consecutive months of decline in the private sector’s liabilities against the rest of the world, in May and July there were significant increases of EUR 508 million and EUR 1,569 million respectively.

While the increase in May was primarily the result of for-eign loans to corporates (EUR 184 million) and banks (EUR 166 million), and deposits by non-residents at Slovenian banks (EUR 130 million), the majority of July’s inflow on the liability side consisted of portfolio invest-ments (EUR 1,408 million). It was at that time (23 July) that NLB d.d. completed its issue on international capital markets of government-guaranteed bonds with a total face value of EUR 1.5 billion. There was a notable trend of declining inward FDI by non-residents in the first half of the year. FDI amounted to EUR 766 million in the second half of last year, but fell to EUR 46 million in the first half of this year, while inward FDI was negative in the amount of EUR 73 million in July.

The issue of two government bonds in the first half of the year brought higher inflows into the government sector. The Ministry of Finance issued two bonds, a 3-year bond in February with a total face value of EUR 1.0 billion and a coupon interest rate of 4.25%, and a 5-year bond in April with a total face value of EUR 1.5 billion and a coupon interest rate of 4.375%. The result of the bond issues was higher inflows into the government sector, which amounted to EUR 1,604 million in the first half of the year. Part of the proceeds was earmarked for the repayment of past-due liabilities, while part was invested in the form of short-term and long-term deposits at banks, the government thereby helping to fund banks during a time of difficult access to funding in the rest of the world.

The decline in financial flows with the rest of the world was accompanied by a decline in gross exter-nal claims and the gross external debt, which ceased in the second quarter. Gross external claims declined by EUR 1.6 billion in the first quarter, and the gross exter-nal debt by EUR 1.7 billion. Gross external claims and the gross external debt remained practically unchanged in the second quarter at EUR 27.9 billion and EUR 37.6 billion respectively, while there was a significant increase in both items in July. Gross claims rose by EUR 1.3 billion in July, and the gross external debt by EUR 1.4 billion. The net external debt has remained at almost the same level since last December, and stood at EUR 9.8 billion at the end of July.

-1.0-0.50.00.51.01.52.02.53.03.54.0

directinvestments

portfolioinvestments

commercialcredits

loans households

1-7 20071-7 20086-12 20081-7 2009

Claims on the rest of the worldflows in EUR billion





EUROSYSTEM

16

According to ESA95 methodology the general gov-ernment deficit is expected to rise significantly this year to 5.9% of GDP, having stood at 1.8% of GDP last year. The general government debt will also be significantly higher. The general government deficit was estimated at 1.8% of GDP under the regular revision for 2008 (the initial estimate from this March put it at 0.9% of GDP), partly as a result of a lower estimate for accounted corporate and personal income tax revenues, and higher estimated capital expenditure. The general government deficit in the first half of the year amounted to EUR 1.2 billion or 6.9% of GDP, revenues having declined by 1.4% year-on-year while expenditure continued to grow, by approximately 10%. In the report on the general gov-ernment deficit and debt, the Ministry of Finance esti-mates this year’s general government deficit at EUR 2.1 billion or 5.9% of GDP, while the debt is expected to

stand at EUR 12.3 billion or 34.2% of GDP at the end of the year, having stood at 22.5% of GDP at the end of last year.

According to national cash-flow methodology Slove-nia recorded a general government deficit of EUR 1.1 billion in the first half of the year, having recorded a surplus in the same period last year. This year’s defi-cit is primarily the product of the state budget, al-though expenditure is also exceeding revenue at the Health Insurance Institute and in local government. The general government sector recoded a deficit of EUR 1,116 million in the first six months of the year, compared with a surplus of EUR 194 million during the same period last year. The majority of the deficit came from the state budget, which recorded a deficit of EUR 993 million in the first six months of the year. State budget revenues were EUR 44 million higher than expenditure in July, but this surplus was significantly smaller than in the same month last year. The Health Insurance Institute generated a defi-cit of EUR 82 million in the first six months of the year (compared with a surplus of EUR 59 million in the same period last year), and a deficit of EUR 125 million is pro-

2008 2009Jan.-Jun. Jan.-Jun.

% GDP y-o-y, %Revenue 15,339 14,790 41.0 -0.5 7,375 6,826 -7.4 … … Tax revenue 13,937 13,349 37.0 -1.4 6,812 6,223 -8.6 -3.2 2.4 - goods and services 4,805 4,717 13.1 -1.5 2,281 2,193 -3.9 -3.5 21.2 - social security contributions 5,095 5,204 14.4 7.3 2,457 2,566 4.4 1.0 1.5 - personal income 2,185 2,117 5.9 5.5 1,061 993 -6.4 11.2 -1.5 - corporate income 1,257 849 2.4 -29.8 740 332 -55.1 -33.6 -25.0 From EU budget 365 456 1.3 26.3 159 249 57.0 … … Other 1,036 986 2.7 2.5 404 353 -12.5 … … Expenditure 15,442 16,202 45.0 11.7 7,182 7,942 10.6 … … Current expenditure 6,557 6,851 19.0 10.9 3,158 3,451 9.3 … … - wages and other personnel

expenditure (incl. contributions) - purchases of goods, services 2,527 2,579 7.2 9.7 1,112 1,164 4.6 … … - interest 335 339 0.9 -1.6 291 295 1.5 … … Current transfers 6,742 7,080 19.6 11.2 3,347 3,684 10.1 … … - transfers to individuals

and householdsCapital expenditure, transfers 1,714 1,817 5.0 17.8 458 561 22.5 … … To EU budget 428 454 1.3 9.4 219 245 11.9 … … GG surplus/deficit -103 -1,412 -3.9 194 -1,116

Source: Ministry of finance, except: * PPA, Report on classified general government revenues and coverage (B-2); Bank of Slovenia calculations.

…

5,619 5,918 16.4 12.3 2,752 3,051 10.8 … …

1,727 1,972 14.2 … 3,579 3,824 10.6 13.6

Consolidated general government (GG) accounts 2008 last 12 months to Jun.09 Jan.-Jun.09 Aug.09 *

EUR millions EUR millions y-o-y growth, %

Jul.09 *

5 Public Finance




17

jected for the year-end in the financial plan. Revenues from health insurance contributions in the first seven months of the year were up 3.9% in year-on-year terms, having recorded year-on-year increases of at least 10% in all quarters last year. Another factor in the widening gap between revenues and expenditure in the first seven months of the year was the accelerating growth in expen-diture, which in the first seven months of the year was up 16.9% in year-on-year terms, in which the most signifi-cant factor was high year-on-year growth in expenditure on wages during this period. Local government recorded a deficit of EUR 59 million in the first six months of the year, having still been in surplus in the same period last year. After recording extremely high growth last year, expenditure on investment in local government continued to grow in the first half of this year.

General government revenues in the first six months of the year were down just over 7% in year-on-year terms. Total payments of tax and social security con-tributions in July and August were again down on last year, but by significantly less than in previous months. Payments of tax and social security contribu-tions in the first eight months of the year were down ap-proximately 6.5% in year-on-year terms. The largest de-cline came from corporate income tax, payments of which during the first eight months of the year were approxi-mately half of those last year. Payments were particularly low in April and May, when the settlements for the previ-ous year are made. Tax prepayments ranged around EUR 60 million between June and August, down approxi-mately 30% on the previous year. The sharp decline in prepayments compared with the previous year is a reflec-tion of the further deterioration in economic conditions, and also a cut of 1 percentage point in the tax rate. Among indirect taxes, VAT payments remain low. VAT payments in the first eight months of the year were down just over EUR 200 million on the same period last year, while payments of excise duties were up a similar amount, primarily on account of duties on fossil fuels, which accounted for more than two-thirds of total excise duty revenues in the first eight months of the year. The rise in payments of excise duties is a reflection of the higher rates applied to all categories of excise duties.

Payments of social security contributions in the first half of the year were up just over 4% on the same period last year, the year-on-year rate of growth having declined significantly since the beginning of the year. The avail-able figures for July and August point to continuing posi-tive year-on-year growth, but conditions on the labour market mean that they can be expected to decline further in the coming months, as employment is likely to continue falling, as is year-on-year growth in the average wage. A similar picture is presented by prepayments of personal income tax based on wage earnings, and total revenues from personal income tax remain down on those last year, primarily as a result of low inflows from tax on earn-ings from business activities and capital gains, which during the first eight months of the year were down just over EUR 70 million.

Growth in general government expenditure remains high, as a result of the financing of assumed commit-ments, the consequences of the implementation of the wage system and crisis-related expenditure. Gen-eral government expenditure in the first six months of the year was up 10.6%, expenditure on wages, investment and transfers to the unemployed recording the largest increases. Expenditure on wages and social security con-tributions was up 14.2% year-on-year in the first six months of the year. Alongside the rise in the number of public sector employees, the main factor in this growth was past wage adjustments, in particular those aimed at eliminating wage discrepancies. Year-on-year growth in

-16-14-12-10

-8-6-4-202468

10121416

-1,600-1,400-1,200-1,000-800-600-400-20002004006008001,0001,2001,4001,600

2006 2007 2008 2009

balance (rhs)*revenues (lhs)*expenditures (lhs)*balance, ESA 95 (% GDP, lhs)**

Public finance developmentsannual growth in % in EUR mio* national methodology

Source: SORS, Ministry of Finance, Bank of Slovenia calculations.

12-month moving sum

**sum of quarterly public finance balances in last 12 months.




EUROSYSTEM

18

expenditure on wages will decline significantly in the sec-ond half of the year as a result of a base effect. By the beginning of September about 70,000 workers had been included in measures to subsidise the labour market, with subsidies of EUR 63 million being approved, just under half for the partial subsidisation of full-time working hours and just over half for the subsidisation of compensation for workers temporarily laid off, including contractual training costs. Expenditure on interest remains similar to last year, despite the large increase in public debt, as under the amortisation schedule the first interest pay-ments from the government bonds issued this year (three bond issues with a total face value of EUR 4 billion) will only be made next year, the interest payments on the basis of these bonds amounting to EUR 132.5 million. The available figures indicate that year-on-year growth in general government expenditure remained high in July.

Expenditure on transfers to individuals and house-holds in July was up more than a tenth in year-on-year terms, similar to the rate of growth in the first half of the year, in which the large increase in expen-diture on the unemployed was prominent, in line with developments on the labour market. July’s largest year-on-year increase in transfers to individuals and households was again recorded by transfers to the unem-ployed, which for the second consecutive month were more than double those in the same month last year. The increase in these payments, which over the first seven

months of the year were up around 75% in year-on-year terms, was expected, and is a reflection of developments on the labour market. There has also been an increase in payments of cash social assistance, primarily on account of a rise in the number of claimants, which in August was up a quarter in year-on-year terms. Expenditure on pen-sions during the first seven months of the year was up just over 9%, but the increase for the year as a whole is forecast to be considerably lower. The number of old age pensioners in July was up 3.3% in year-on-year terms, while the total number of pensioners was up 1.6%.

Borrowing by the general government sector in the first half of the year was aimed at financing the deficit and repaying debt, although there was also a signifi-cant increase in assets held in accounts. The general government sector borrowed approximately EUR 3.5 bil-lion in the first half of the year, primarily by issuing bonds on the domestic market. The proceeds were aimed at financing the deficit in expenditure over revenues in the amount of EUR 1.1 billion and the deficit of EUR 153 mil-lion in the account of financial assets and claims, and repaying debt in the amount of approximately EUR 800 million. The remaining sum of almost EUR 1,5 billion went to increase placements in accounts in the first half of the year.

Slovenia issued its third government bond of the year in September. Bonds having been issued in February, with a total face value of EUR 1 billion, and in April, with a total face value of EUR 1.5 billion, the third bond issue , with a total face value of EUR 1.5 billion, was made in September. The maturity is 15 years. The nominal yield was 80 basis points over the swap rate. The coupon rate is 4.625%, while the yield to maturity was 4.645%. This bond has the longest maturity of all those issued since Slove-nia joined the euro area. This bond completes Slovenia’s debt repayment programme for 2009, and also partly covers budget needs for 2010.

Under the Republic of Slovenia Guarantee Scheme Act, within the framework of which government guarantees of EUR 1.2 billion have been made available to banks for lending to corporates and cooperatives, in the three auctions held to date just EUR 80 million of the EUR 310 million in approved guarantees has been used, the total lending that banks have included in the guarantee scheme reaching EUR 257 million. Guarantees of EUR 50 million were approved at the fourth auction. The guarantee scheme for individuals, in which EUR 350 million of guarantees are available, is expected to fully activate in October, when the first loans within the scheme become available to households.

Another government-guaranteed bond was issued in September. Abanka Vipa issued a 3-year bond with a total face value of EUR 500 million and a coupon rate of 100 basis points over the 3-month EURIBOR. The bank must pay a commission for the guarantee issued in the amount of 100 basis points per annum on the total face value of the bond issue.

Box: Government measures in finance




19

The banking system’s total assets declined by EUR 581 million in August. The decline on the liability side was the result of debt repayments by banks to banks in the rest of the world in the amount of EUR 0.37 billion and a decline of EUR 0.40 billion in liabilities to the Euro-system, which was reflected in a decline of EUR 0.64 billion in claims towards banks and in weak lending to non-banking sectors. August’s monthly decline in the banking system’s total assets was the third this year, af-ter March and June. August’s decline in turnover was predictable after the large increase in total assets in July, while in August there were also no measures that in pre-vious months had been employed to increase total as-sets.

Lending to non-financial corporations dried up again in August. Lending to households was relatively solid for the second consecutive month. Lending to non-banking sectors remains weak, a net increase in loans of just EUR 54 million being recorded in August, solely on account of an increase in loans to households. Year-on-year growth in lending to non-banking sectors declined to 5.2%.

Banks again made virtually no lending to non-financial corporations in August, loans recording a negligible net

increase of EUR 2.2 million. The stock of bank loans to non-financial corporations has actually declined by EUR 36 million this year. Year-on-year growth in bank loans to non-financial corporations declined to less than 4%. Cor-porates made net repayments at the banks under major-ity domestic ownership, but had net borrowings from banks under majority foreign ownership.

The net increase in loans to households amounted to EUR 59 million. Long-term loans constituted the majority, while short-term lending again almost completely dried up. Lending to households by the domestic banks and the banks under majority foreign ownership was approxi-mately the same in August, the former recording a net increase in lending of just over EUR 29 million, the latter a net increase of EUR 30 million.

6 Banking System*

* The book figures for banks are used in this section, and differ in methodological terms from the published statistics.

2009Jan.- Aug.

y-o-y growth, % Interest income 1,954.0 2,615.2 1,424.4 -14.6 Interest expense 1,137.7 1,670.6 827.5 -22.0 Net interest income 816.4 944.6 596.9 -1.7 Non-interest income 616.7 415.6 337.0 9.4 Gross income 1,433.0 1,360.2 933.9 2.1 Operating costs 755.9 776.0 492.3 -0.9 Net provisions 163.0 277.9 247.7 271.6 Profit before tax 514.2 306.3 194.0 -44.9 Taxes 102.5 58.6 Profit after tax 411.7 247.7


Aug.2009 Income statement

EUR millions

2007 2008

- 20

- 10

0

10

20

30

40

50

2006 2007 2008 2009

credits to nonbankssecuritiestotal assets

Growth of lending

year-on-year, %





EUROSYSTEM

20

Banks made net repayments to the Eurosystem and to banks in the rest of the world in August. In August banks reduced their stock of debt to the Eurosystem by EUR 0.4 billion, and to banks in the rest of the world by EUR 0.37 billion. The banks under majority foreign own-ership accounted for EUR 0.32 billion of the latter figure. The banking system’s stock of liabilities to banks in the rest of the world at the end of August was down a fifth on a year earlier. Banks made net debt repayments in the rest of the world of EUR 2.6 billion over the first eight months of this year. The proportion of total balance sheet liabilities accounted for by liabilities to foreign banks de-clined by 9 percentage points in the last year to 27%.

The government sector was the main factor in the in-crease in deposits by non-banking sectors: it accounted for almost four-fifths in the first eight months of the year, or EUR 1.7 billion of the total increase in deposits of EUR 2.15 billion. Bank funding from household deposits was significantly weaker this year than last year, amounting to just EUR 0.42 billion, compared with an increase of EUR

0.74 billion in household deposits at banks in the same period last year. Year-on-year growth in household de-posits has been declining since February, and reached 6% in August. The government accounted for almost a third of August’s increase in bank deposits of EUR 129

1.3

15.1

2.2 2.41.4

16.3

2.0 2.3

8.1

1.7 2.21.2

14.7

1.7 2.2

0.6

7.2

1.5 2.00.7

0

5

10

15

20

ROA ROE operatingexpenses/assets

net interestmargin*

2006200720082008 (1-8)2009 (1-8)

*on average interest-bearing assets

Banking performance indicators

%


growth y-o-y2007 2008 Jan.- Aug.2009 Aug.09 / Dec.08 growth

Assets Cash 604 1,243 1,040 -16.3 78.9 Lending 32,374 37,561 38,287 1.9 4.5 to banks 4,072 4,031 4,516 12.0 -0.1 to non-banking sectors 28,302 33,530 33,772 0.7 5.2 of which: …corporates (non-financial corporations) 17,039 20,245 20,209 -0.2 3.9 …households 6,429 7,386 7,630 3.3 6.3 …general government 465 506 669 32.1 59.5 …other financial institutions 2,114 2,829 2,877 1.7 13.0 Financial assets / securities 7,720 7,280 8,549 17.4 9.9 Other 1,645 1,544 1,701 10.2 0.9 Liabilities Financial liabilities to Eurosystem 157 1,226 1,348 9.9 1,360.5 Liabilities to banks 15,929 18,146 15,913 -12.3 -14.0 of which, to foreign banks 14,410 16,091 13,455 -16.4 -20.0 Liabilities to non-banking sectors (deposits) 19,381 20,612 22,761 10.4 11.0 of which, to households 12,105 13,210 13,627 3.2 6.1 Debt securities 963 1,259 2,873 128.2 169.7 Subordinated liabilities 1,470 1,597 1,570 -1.7 -0.5 Capital 3,556 3,996 4,333 8.4 11.5 Other 887 792 779 -1.7 -24.4 TOTAL ASSETS 42,343 47,628 49,577 4.1 6.2

Source: Bank monthly accounts figures.

Balance sheet

stock, EUR millions

Position

growth in %




21

million, followed in importance by households, non-financial corporations and OFIs.

Impairment and provisioning costs remain a key rea-son for the banking system’s lower pre-tax profit. Profit over the first eight months of the year was down 45% on the same period last year at EUR 194 million. Growth in the banking system’s net interest remains mod-erately negative, while the interest margin on interest-bearing assets was down just over 0.2 percentage points on last year at just under 2%. Net non-interest income is up just under a tenth, partly as a result of gains of EUR 40 million on financial assets and liabilities held for trad-ing, banks having realised a loss of similar magnitude last year. Operating costs were down slightly on last year for the second consecutive month. The banking system’s ROE remains half of that in the same period last year at 7.2%.

The market yields on debt securities fell in August, primarily as a result of higher demand and higher liquidity. The yield on Slovenian long-term government securities was down 26 basis points at 4.07%, and was 76 basis points higher than the yield on German govern-ment securities. The assurances given by government

representatives that there would be a continuation of the stimulus measures to help revive the economy, and with it employment, had a positive impact on the market, de-spite the release of some weak figures. Despite fluctua-tions, the US S&P stock market index rose by 4.2% in August, while the western European DJ EuroStoxx index rose by 6.8%. They had gained an additional 2.0% and 1.3% respectively by 14 S

Documents

BANK OF SLOVENIA EUROSYSTEM MONTHLY BULLETIN...Origin of value added: 2008 Agriculture 2.0 % Industry 28.9 % Construction 8.1 % Services 61.0 % Total 100.0 % GDP real annual change