Summary of macroeconomic developments, May 2019
Economic growth in the euro area remains stable, albeit relatively low. Economic developments remain favourable in Slovenia, and are still being reflected in the situation on the labour market. The ongoing rapid employment growth and the increased wage growth are strengthening consumer purchasing power, and are bringing an increase in core inflation. These are the key highlights of the Summary of macroeconomic developments, which also presents analysis of corporate performance, which improved again last year in the strong economy.
Economic growth in the euro area remains low (a year-on-year rate of 1.2% in the first quarter), while growth in domestic demand remains solid in the wake of rising uncertainty in global trade. Construction activity and growth in turnover in services strengthened, while the year-on-year decline in industrial production slowed significantly compared with the end of last year.
The Slovenian economy again recorded high growth in the first quarter of this year, despite weaker export developments in March. Growth in industrial production and growth in merchandise exports both strengthened. The situation in the service sector remained good: growth in turnover was again high, partly on account of solid growth in exports of services, and partly on account of strengthened domestic final consumption. In the wake of a renewed increase in government investment, signs of a pick-up in construction activity began to be seen. Despite the uncertainties in the international environment and increased domestic consumption, nominal growth in exports in the first quarter of this year was slightly higher than growth in imports, and the 12-month current account surplus remained high, at 7.1% of GDP.
On the labour market, the year-on-year increase in the workforce in employment excluding self-employed farmers stood at 3.1% in March (and exceeded 10% in the construction sector). Despite the high employment growth, the number of vacancies is still increasing: the vacancy rate stood at 2.6%, equalling its highest figure to date. According to survey data, employment growth is expected to slow over the coming months, particularly in manufacturing. Nominal year-on-year growth in the average gross wage increased to 4.9% in March. It was highest in financial and insurance activities, at more than 12%, thanks to high bonus payments.
The ongoing rapid employment growth and the increased wage growth are strengthening consumer purchasing power, and are bringing an increase in core inflation (as measured by inflation excluding food and energy prices). The rate reached 1.9% in April, the highest figure since 2009. Headline inflation rose again slightly in April (to 1.8% in year-on-year terms).
Figure 1: Monthly activity indicators in Slovenia, year-on-year change, real indices, %
Sources: SORS, Bank of Slovenia calculations
Note: Three-month moving averages; the figures for industry and services are calendar-adjusted, and the figures for construction are seasonally adjusted
Corporate performance improved again in 2018. According to end-of-year accounts, employment increased by 4.4%. Growth in gross value-added was even higher at 7.6%, which meant that there was an increase in labour productivity. The increase in overall productivity was primarily attributable to firms that generate the majority of their revenues on the domestic market. Net profit amounted to EUR 4.2 billion, up 16% on 2017, and the highest figure to date. Corporate indebtedness declined again last year, approaching its level of 1999. Export-oriented firms continued to record the lowest debt levels.
The proportion of corporate financing accounted for by internal resources increased again last year, and record profits are allowing this approach to financing to continue. This is beneficial from the perspective of corporate financial stability, as it provides for a further improvement in the ratio of equity to debt financing, while additionally reducing the need for bank financing. This is maintaining the income risk to banks, as corporate demand for loans can be expected to remain weak.
Figure 2: Net profit in the corporate sector, 2008 to 2018, EUR billion
Sources: AJPES, Bank of Slovenia calculations
Note: Difference between net profits and net losses in the accounting period