Press release: Economic growth remains solid

The Governing Board of the Bank of Slovenia discussed and approved several resolutions and materials at its latest meeting.

1. Summary of macroeconomic developments, November 2015
The increased risks in the international environment are for the moment not impacting on domestic economic activity: the available monthly indicators reveal solid economic growth, which is likely to have continued outperforming the euro area overall in the third quarter.
Manufacturing made a significant contribution to growth, the anticipated slowdown in growth in output in the automotive industry having already been compensated for by faster growth in other sectors. Growth in turnover in private-sector services also remained solid, although there is likely to have been a slight decline in the contribution made by household consumption, at least judging by the stagnation in the consumer confidence indicator and by turnover in accommodation and food service activities and in wholesale and retail trade. In contrast to the aggregate developments, construction is facing increasing difficulties, as it is almost entirely dependent on government investment, which so far this year has been significantly less than forecast. Net trade is expected to have made the prevalent contribution to GDP growth in the third quarter, a further indication of which comes from the current account surplus, which is approaching 8% of GDP.
The indications are that growth in final household consumption slowed in the third quarter, which is coinciding with a decline in growth in disposable income, which this year has been based almost entirely on the total wage bill. As nominal wages stagnate, the latter has continued to be raised by growth in employment, which remains solid, while deepening deflation is also having a significant impact on real purchasing power. Deflation reached 1.1% in October, as price growth in almost all major categories was significantly below the euro area average. 
Slovenia’s fiscal position is continuing to improve. In the wake of favourable economic growth and austerity measures, growth in general government revenues is significantly outpacing growth in expenditure. This will allow the deficit to be cut to below 3% of GDP this year. At the same time the risks in the fiscal area are high, and primarily derive from certain one-off factors, including BAMC transactions and the financial burden of the refugee crisis.
 

2. Monthly briefing on bank performance
The trends seen in previous months continued in the banking system in September. The contraction in total assets is continuing: on the asset side lending is declining, while borrowing on the wholesale markets is declining on the liability side. The banks’ debt to the rest of the world declined by EUR 1.4 billion over the first nine months of the year, and now accounts for 12.8% of funding. Deposits by the non-banking sector account for 67% of funding. Their average maturity is continuing to shorten. In addition to household deposits, there has been a significant increase in corporate deposits at banks, which were up 8.5% in year-on-year terms in September. 
The rate of contraction in loans to the non-banking sector has stabilised at 10% in recent months, the rate for loans to non-financial corporations stabilising at between 17% and 18%. The contraction is slowing at the large domestic banks. Growth in housing loans has continued to increase, while the contraction in consumer loans is slowing. 
Lending rates are falling faster in 2015 than last year, and faster than in the euro area overall. The banks are also encouraging household borrowing through an increased supply of fixed-rate loans, which entail lower interest rate risk for borrowers and a lower debt servicing burden, thanks to the sharp reduction in interest rate levels. 
The proportion of claims more than 90 days in arrears, a measure of the quality of the credit portfolio, has stabilised at 11.1% in the last quarter. There has been a notable improvement in the quality of the portfolio of manufacturing firms, where the figure stands at 9.2%. The banks have increased their write-offs of non-performing claims this year: write-offs amounted to EUR 0.6 billion over the first nine months of the year.
The banks generated a pre-tax profit of EUR 197 million over the first nine months of the year, up 62% on the same period last year. The key factor in the improved performance was a decline in impairment and provisioning costs.

3. Commemorative 2-euro coin with joint design to mark the 30th anniversary of the Flag of Europe
At the end of 2014 the European Commission took the decision for euro area countries to jointly issue a commemorative 2-euro coin with a design marking the 30th anniversary of the Flag of Europe. The Slovenian government therefore issued a resolution committing its commemorative coin issues in 2015 to marking, in addition to the Emona – Ljubljana celebrations and the 500th anniversary of the first printed text in Slovene, the 30th anniversary of the Flag of Europe.
A total of one million commemorative 2-euro coins marking the 30th anniversary of the Flag of Europe with Slovenia inscribed as the country of issue will be released into circulation on 7 December 2015. The commemorative 2-euro coins are legal tender in all euro area countries.

4. The Governing Board of the Bank of Slovenia discussed current supervisory matters.