Services and construction the largest factors in slowing economic growth

Year-on-year economic growth in Slovenia slowed to 2.3% in the third quarter, although the economic situation remains better than in the euro area overall. While the labour market remains buoyant, growth in private consumption has been particularly robust this year, which is a sign that consumers’ declining optimism is not yet being reflected in their purchasing decisions. The investment situation is less favourable. Given the great uncertainty in international trade, investment in machinery and equipment is weak, although the financial conditions for investment remain extremely good, and real growth in exports and value-added in industry is very solid. The weak investment developments in the third quarter were also attributable to lower growth in government investment, which is also a factor in the fall in value-added in construction.

Private-sector services remain the key factor in the slowdown in economic growth over the last year. Growth in domestic final consumption remains high, and the slower growth in activity in private-sector services is primarily attributable to weaker growth in exports of services and in domestic investment. Over the last decade private-sector services have become more sensitive to the situation in the international environment, as their dependence on sales on foreign markets has increased during this period. Weaker investment saw the contribution to GDP growth by construction turn negative in the third quarter of this year.

The situation on the labour market remains favourable. Real year-on-year growth in the wage bill stood at 5.0% in the third quarter, taking its total increase over the post-crisis period to 26.2%. The surveyed unemployment rate rose unexpectedly in the third quarter, to 4.8%, still down 0.2 percentage points on a year earlier. From the perspective of private consumption, the situation on the labour market thus remains better than in the euro area overall. The narrowest core inflation indicator consequently remains higher: it stood at 1.9% in Slovenia in November, compared with 1.3% in the euro area overall.

The available figures suggest a continuation of similar economic developments at the tail end of this year. Some figures from the international environment and manufacturing surveys point to the possible stabilisation of foreign demand, while growth in turnover in certain service sectors is also forecast to remain solid. However, the economic sentiment is continuing to decline. It is mainly consumers who have become less optimistic, as did retail firms in November, although household purchasing power is continuing to increase.

Figure: Economic sentiment in Slovenia

Sources: SORS, Bank of Slovenia calculations