Press release after the Meeting of the Governing Board of the Bank of Slovenia - 2 July 2013
1) The Governing Board of the Bank of Slovenia discussed current supervisory matters.
2) The Governing Board of the Bank of Slovenia discussed current economic and financial developments, and approved the release of the Economic and Financial Developments document for June 2013 and the report on Slovenia’s economic relations with the rest of the world for April 2013.
Economic developments in the euro area became less unfavourable in the middle of the second quarter, while the Slovenian economy is also showing signs of a temporary improvement. Industrial production has no longer been declining in the last three months, largely as a result of a significant increase in exports. Businesses also assessed future demand positively throughout the period to June. The negative trends in construction eased slightly, and turnover in the retail sector increased in May. However, the positive developments on the labour market in April and May were primarily seasonal in nature. Unemployment is high, and given the unfavourable forecasts of future economic growth it cannot be expected to fall in the short term. Given the significant decline in the wage bill in real terms, this is being reflected in domestic demand remaining weak. Additional fiscal consolidation measures are again expected to contribute to moderately negative growth in GDP next year. It is only in 2015 that sustained positive growth is expected to resume, given an improvement in the international environment and a positive impact on the financing of the economy from the significant fiscal resources earmarked for rescuing troubled banks.
Low economic activity and income in the early part of the year were reflected profoundly in the public finance position, particularly given the measures to strengthen bank capital. The general government deficit according to the ESA 95 methodology stood at 6.5% of GDP in the first quarter, or 10.4% of GDP if capital increases in the banking sector are included. The revision to the state budget adopted by the government on 20 June forecasts a deficit of EUR 1.5 billion or 4.4% of GDP at year end, just over EUR 0.5 billion more than forecast in the original budget. In light of the May 2013 additions to the Stability Programme, the revision also raises the funding for strengthening bank capital, to EUR 1.2 billion. The main interventions in the bank rescue programme are projected for this year, which will significantly increase the general government deficit and debt on a temporary basis this year. The government is forecasting the deficit to narrow to 2.6% in 2014.
Inflation has eased in this adverse economic environment. Year-on-year growth in the HICP rose to 2.2% in June as fuel prices rose, but the core inflation indicators remain low and below the euro area average. The rise in VAT and certain other fiscal measures are expected to exert major one-off upward pressures on prices, but headline inflation is forecast to remain around 2% in the second half of the year as a result of low domestic demand and the cost adjustment of the economy.
3) The Governing Board of the Bank of Slovenia discussed the Overview of Slovenia’s Financial Accounts 2007-2012. The overview will be published in the annual statistical publication Financial Accounts of Slovenia 2007-2012, together with detailed figures for institutional sectors and financial instruments, and the methodology and process of compilation.
4) The Governing Board of the Bank of Slovenia passed a resolution establishing the National Payments Council. The establishment of the National Payments Council follows a review of the role of the SEPA Council, the purpose of which is to ensure the requisite dialogue at EU level between various stakeholders in the payment services market, in particular with the objective of including users of payment services in this dialogue. At both the EU level and the national level in Slovenia, the SEPA was first and foremost a banking sector project, with insufficient involvement on the part of payment service users. The Bank of Slovenia has also drafted rules of procedure for the National Payments Council, a body focusing on strategy, consultation and communications, where representatives of the supply and demand sides of the payment services market will meet at senior level under the aegis of the Bank of Slovenia, interests will be coordinated, priorities will be set and any disputes will be resolved. In addition to banks, the Bank of Slovenia will invite other stakeholders that can contribute their expertise to the effective provision of payment services to join the National Payments Council, based on membership criteria in accordance with the regulation.