BANK OF SLOVENIA EUROSYSTEM MONTHLY BULLETIN...Annual inflation rate 3.1 % November, 2008 General...

November 2008Vol 17 No. 11

BANK OF SLOVENIA

EUROSYSTEM

MONTHLY

BULLETIN

BANKA SLOVENIJE

2 Monthly Bulletin, November 2008

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 KOŠAK, Vice GovernorMr. Janez FABIJAN, Financial StatisticsMrs. Danica PRELOVŠEK, Advisor to the GovernorMr.Franc DRENOVEC, Advisor to the GovernorMr. Damjan KOZAMERNIK, Analysis and ResearchMr. Tomaž KOŠAK, Financial StabilityMr. Ernest ERMENC,Accounting

BANKA SLOVENIJE

3Monthly Bulletin, November 2008


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, November 2008


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

132447778492

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 2,025,866 number 12.31.2007Population growth 0.8 % 12.31.2007Population density 99.9 number / km2 12.31.2007Population of City Community Ljubljana 267,760 number 12.31.2007

Origin of value added: 2007Agriculture 2.0 % Industry 27.5 %Construction 7.0 %Services 63.5 %Total 100.0 %

GDP real annual change 6.8 % 2007

Industrial production annual change 1.5 % Sept., 2008Total employment annual change 3.2 % Sept., 2008Unemployment rate (ILO definition) 4.1 % Jul.-Sept.., 2008Annual inflation rate 3.1 % November, 2008

General government:revenue 43.2 % BDP 2007surplus/deficit -0.1 % BDP 2007

Trade balance -170.6 mio EUR Sept., 2008BOP current account -146.3 mio EUR Sept., 2008International reserves 718.5 mio EUR 10.31.2008Foreign exchange reserves 631.3 mio EUR 10.31.2008Net foreign debt 8,757 mio EUR 09.30.2008Gross foreign debt 39,828 mio EUR 09.30.2008

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

BANKA SLOVENIJE

1-I.Monthly Bulletin, November 2008

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, November 2008

ECONOMIC AND FINANCIAL DEVELOPMENTSBANK OF SLOVENIA

EUROSYSTEM

1 GOSPODARSKA IN FINANČNA GIBANJA, November 2008

GDP in the third quarter was down compared to the second quarter in both the US and the euro area. The economic sentiment indicator for the euro area declined for the fifth consecutive quarter, and is now at its lowest level since 1993. International institutions are continuing to cut their forecasts for economic growth in 2009; they are now negative for both the US and the euro area. As a result of the slowdown in global economic growth and market participants’ convic-tion that OPEC, despite a possible cut in output, will not succeed in halting the sharp fall in oil prices, the price of oil continued to fall, reaching around USD 50 per barrel (159 litres) by the second half of November. Thus the price of oil was down a half on the beginning of the year, and down a third on the October average. The euro fluctuated just under USD 1.30 in November, down just over a fifth on August, when it reached this year’s high against the US dollar. Year-on-year inflation in October fell to 3.2% in the euro area and 3.7% in the US. Central banks are continuing to cut inter-est rates. The ECB and the Federal Reserve cut their key interest rates by 0.5 percentage points to 3.25% and 1.0% respectively, but market participants are expecting further cuts.

There are also signs of a further slowdown in economic activity in Slovenia. This is being reflected in a decline in new orders in manufacturing industry, and a consequent increase in inventories, a decline in real income in tourism, and a further slowdown in indicators of activity in the construction sector. The economic sentiment indicator in November was down 13 percentage points on October, reaching its lowest level since measurement began in 1995. The consumer confidence indicator is also deteriorating, and in November reached its lowest level since measurement began in 1996. September’s industrial production was up 2.4% on August, and was up 1.5% in year-on-year terms, significantly less than the long-term average rate. By September there was yet to be any sign of the impact of the cooling economy on the labour market, either in employment growth or in the registered unemployment rate. Wage growth remains high: in September year-on-year growth in the average gross wage stood at 12.9% in the public sector and 10.7% in the private sector.

The current account deficit over the 12 months to September remained unchanged at 6.5% of GDP. The decline in domestic demand and the falling prices of oil and other commodities on international markets will act to improve the current account position in the future, while the decline in foreign demand will act to worsen it. In September the finan-cial turmoil manifested itself in a decline in both the private sector’s liabilities to and claims against the rest of the world, which was reflected in a decline in the gross external debt.

Year-on-year inflation as measured by the HICP stood at 2.9% in November, down 1.9 percentage points on October. November’s fall in core inflation expressed as growth in the harmonised index of prices excluding energy, food, alcohol and tobacco was smaller, the rate falling 0.3 percentage points to 3.6%. The fall in inflation could continue in the com-ing months, which would be in line with the expected continuing slowdown in economic activity, lower aggregate de-mand, and lower price pressures from the rest of the world. The trend of decline in core inflation could be limited by the still-high growth in nominal labour costs.

Growth in the banking system’s total assets and lending to non-banking sectors slowed again in October. The main factor in the decline in growth in total assets was debt securities held as assets, while on the liability side bank funding via borrowing at the ECB strengthened, as deposits declined. The banking system’s pre-tax profit was down 15.5% on the same period last year. The negative developments on the domestic capital market continued in October. The mar-ket capitalisation of shares on the Ljubljana Stock Exchange declined by 12.5%, in the context of a fall of 18.7% in the SBI20. The assets of domestic mutual funds declined by 16.5% in October to EUR 1,754 million.

The National Assembly adopted updated laws on banking and public finance, thereby setting the legal basis for the measures announced to safeguard the stability of the financial system. The amendment to the Banking Act introduces an unlimited guarantee for net bank deposits as defined by law until the end of 2010. The amendment to the Public Finance Act allows for additional government borrowing for providing loans to financial institutions, for issuing guaran-

ECONOMIC AND FINANCIAL DEVELOPMENTS


BANKA SLOVENIJEBANK OF SLOVENIA

EUROSYSTEM


tees of up to EUR 12 billion for the funding of credit institutions, and for making capital investments by the government in financial institutions. The Ministry of Finance is also planning to release new government bonds on the basis of the amended Public Finance Act.

ECONOMIC AND FINANCIAL DEVELOPMENTS BANKA SLOVENIJE




In the third quarter GDP was down 0.2% on the previ-ous quarter in the euro area and down 0.1% in the US. Germany and Italy recorded declines of 0.5% in eco-nomic activity over the same period. The decline in eco-nomic growth in the US was primarily the result of a de-cline in household consumption, which fell by 0.9% in quarterly terms, most notably spending on consumer dur-ables. In its November report the OECD cut its economic growth forecasts for 2009 for both the euro area and the USA as a result of tightened conditions on the financial markets and weak economic growth figures. Economic growth in 2009 is expected to stand at -0.6% in the euro area, and -0.9% in the US. Negative economic growth is also forecast for the euro area’s three largest economies: Germany (-0.8%), France (-0.4%) and Italy (-1.0%). In-dustrial production in the euro area in October was down 2.4% in year-on-year terms. The economic sentiment indicator for the euro area, which is released each quar-ter by the Ifo Institute, fell for the fifth consecutive quarter and is now at its lowest level since 1993. The view of the current situation was particularly pessimistic, while the expectations for the next six months were practically un-changed.

The major central banks have continued to cut their base interest rates. The ECB cut its key refinancing rate by 0.5 percentage points in November to 3.25%, while

the Federal Reserve cut its key interest rate by 0.5 per-centage points at the end of October to 1.0%. Market participants are expecting new interest rate cuts by the Federal Reserve, primarily to encourage economic growth. The financial markets remain in turmoil, but inter-bank rates were showing some signs of easing in early November.

The euro gradually fell against the US dollar over the first three weeks of November, in the context of sig-nificant fluctuations. It averaged USD 1.3330 in Octo-ber, and USD 1.2732 in November.

Inflation declined further in October in the euro area and in the US mainly due to falling down in commod-ity and food prices and cooling economic activity. Year-on-year inflation as measured by the HICP stood at 3.2% in the euro area in October, down 0.4 percentage points on September. The main factor in headline year-on-year inflation was growth in transport services prices, food prices and housing prices. Year-on-year core infla-tion as measured by growth in prices excluding energy and unprocessed food declined by 0.1 percentage points to 2.4% in October. Year-on-year inflation in the US stood at 3.7% in October, down 1.2 percentage points on Sep-tember. The main factor in October’s increase in the CPI was again energy prices, while year-on-year core inflation (excluding energy and food) was down 0.3 percentage points on September at 2.2%.

The average price of a barrel of Brent crude and the

1 International Environment

INTERNATIONAL ENVIRONMENT 2005 2006 2007

InflationEuro area 2.2 2.2 2.1 3.2 OctoberUSA 3.4 3.2 2.9 3.7 OctoberGDP forecast for 2008Euro area 1.4 2.9 2.7 (1.2)* OctoberUSA 3.2 2.9 2.2 (1.5)* OctoberCommodities, USD prices:Primary, total 6.0 27.7 18.8 -17.3 October- industry 11.7 46.3 12.7 -30.7 OctoberFood 1.7 11.4 25.9 -16.1 OctoberOil (Brent, USD/barrel) 54.2 64.9 72.7 54.0 NovemberCentral banks' interest ratesEuro area 2.25 3.50 4.00 3.25 NovemberUSA 4.25 5.25 4.25 1.00 November

Sources: Bloomberg, The Ecnomist, Eurostat, * European Commision (October 08')Notes: Forecast for the current year are stated in brackets for GDP.

2008

% at the end of period

annual growth rates, %

0

1

2

3

4

5

2005 2006 2007 2008

USA Euro area

Real GDP annual growth, %

Source: Eurostat, U.S. Bureau of Economic Analysis




EUROSYSTEM


average prices of other commodities fell sharply in November. A barrel of Brent crude averaged USD 72.84 in October, the average price then declining to USD 53.24 in November. The main factors in the fall in oil prices were concerns over the slowdown in the global economy and the conviction on the part of market partici-pants that OPEC would not succeed in halting the sharp fall in oil prices despite a possible cut in output. Year-on-year growth in the US dollar prices of commodities other than oil turned negative in October, reaching -17%. The main factors in the negative growth were prices of indus-trial commodities, which fell by 31% year-on-year in Octo-ber, and prices of metals, which fell by 35% over the same period. Year-on-year growth in food prices stood at -16% in October. One factor in the large year-on-year decline in other commodity prices was the high basis from last year.

Several sectors of industry recorded positive year-on-year growth in September, while inventories also increased, both in year-on-year terms and in monthly terms. The increase in industrial production in both year-on-year and monthly terms was partly the result of the previous low basis and the decline in industrial production

in the summer. September’s industrial production was up 2.4% on August, and was up 1.5% in year-on-year terms, adjusted for the number of working days. Production in manufacturing was up 1.8% in year-on-year terms in Sep-tember. Only production of capital goods was down on August, by 6.1%, while there were increases in produc-tion of intermediate goods (0.6%) and consumer goods (6.5%). September’s industrial production in the mining sector was up 13.8% on August, while that of the electric-ity, water and gas supply sector was down 1.2%. In some sectors the negative trends of the summer months contin-ued, such as the manufacture of leather and leather prod-ucts, which recorded a year-on-year decline of 9.5% ac-cording to non-seasonally adjusted figures, and the manufacture of textile and fur products, which recorded a

-4

-2

0

2

4

6

8

10

-10

-5

0

5

10

15

20

25

2005 2006 2007 2008

GDP y-o-y (lhs)industrial production y-o-y (rhs)industrial production X-12 trend annualised* (rhs)

Industrial production and GDPgrowth rates

* data shown are calculated as three-month moving averages against the corresponding average three months earlier

Source: SORS, Bank of Slovenia calculations.

2 Economic Activity and Labour Market 2008 2008

Jan.-Sep. Sep.annual growth in %

Industrial production 3.4 6.1 6.0 1.3 5.5Inventories 6.2 1.9 8.3 8.2 5.3Productivity 4.1 7.8 6.2 1.4 6.4Construction: - total 3.0 15.3 18.4 20.2 19.4-Buildings 10.3 14.0 15.7 17.2 20.8-Civil engineering -4.5 16.8 24.9 22.4 18.5Trade-Retail sales 6.9 1.6 5.5 5.5(1-8) 3.1(8)of which: - Foods 7.0 -2.7 -1.0 5.2(1-8) 10.0(8) - Non-foods 6.6 6.6 12.3 5.9(1-8) -3.3(8)-Motor Vehicles 12.9 11.7 14.2 20.1(1-8) 9.6(8)Hotels and restaurants: total 4.5 6.1 0.4 -3.0(1-8) -5.7(8)-Accommodation 1.4 2.1 1.9 -2.4(1-8) -7.4(8)-Restaurants 8.9 8.8 -1.9 -4.1(1-8) -5.3(8)Tourism (overnights) -0.2 2.0 7.0 2.0 -4.0Sources: SORS, Bank of Slovenia calculations.Number in parenthesis refers to the month of last available data.Differences from official numbers are due to rounding.

Economic Activity 2005 2006 2007

20

40

60

80

100

120

140

100

150

200

250

300

350

400

2005 2006 2007 2008

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





year-on-year decline of 8.5%. Sectors that have been relatively dynamic in recent years again recorded higher activity in September. Examples are the manufacture of transport equipment, which recorded a year-on-year ex-pansion of 6.6% in September according to non-seasonally adjusted figures, and the manufacture of met-als and fabricated metal products (a 2.1% increase). New orders in industry have also been declining for some months now in year-on-year terms, in line with economic trends in the European Union and the wider economic environment. The value of new orders received in Sep-tember was down 15% year-on-year in real terms. New orders from the domestic market were down 21.5%, while new orders from the foreign market were down 13.5%. Inventories are increasing in line with the decline in do-mestic and foreign orders: according to figures adjusted for the number of working days, in September they were up 5.4% in year-on-year terms and up 0.1% on August. Sales revenues in industry were up 1.6% in year-on-year terms overall in September, declining by 1.1% on the domestic market, but rising by 3% on the foreign market.

The indices of the value of construction put in place remain high, but are showing signs of a subsequent slowdown in activity. The real value of construction put in place was up 19% in year-on-year terms in September. The figure was up 12.6% on August, the value of civil engineering construction rising by 20.8% and the value of building construction by 1.9%. The number of building permits issued for buildings in the third quarter was down

16%, while the number of permits issued for residential buildings was down 39% on the same period last year.

Activity remains relatively high in the service sector, but this sector is also showing signs of a slowdown. Sales revenues in retail trade in September were up 6.1% in year-on-year terms, and up 2.6% on August. At 4.7%, monthly growth in sales revenues from non-food retail was faster than that of retail of food, beverages and tobacco products (0.8%). Trade in motor vehicles is still recording the fastest real growth in sales revenues, which in September were up 19.7% in year-on-year terms and up 6.8% on August. The transport sector was also dy-namic in September, when the volume of goods carried in shipping was up 14.5% on the same month last year. Passenger transport increased as well, numbers rising by 4.2% in road transport and 3.4% in aviation. Signs of cooling activity are already being seen in tourism, where real revenues in August were down 5.7% in year-on-year terms, and the number of overnight stays in September was down 4% in year-on-year terms.

The economic sentiment indicator declined again in November, the confidence indicator in manufacturing recording the largest decline. The economic sentiment indicator was down 26 percentage points in year-on-year terms, and down 13 percentage points on the previous month, thus reaching its lowest value since measurement began in 1995. All confidence indicators recorded signifi-cant declines in both year-on-year and monthly terms. The largest decline was recorded by the confidence indi-

0

5

10

15

20

25

2005 2006 2007 2008

Sloveniaeuro area (15 countries)

Turnover in service activities*

Source: Eurostat.

seasonally adjusted, y-o-y growth rates in %

* Trade without retail trade, transport, tourisem and other services except construction and financial intermediation

0

20000

40000

60000

80000

100000

-40

-20

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008

value of const. put in place - residential buildingsvalue of const. put in place - non-resid. buildingsvalue of const. put in place - civil engineering employed in construction (right)

Constructionnumber of employed

Source: SORS.

y-o-y real growth rates in %




EUROSYSTEM


cator in manufacturing, which was down 32 percentage points in year-on-year terms, partly as a reflection of the current economic and financial developments, and the pessimistic outlook in the EU and in the wider economic environment. The confidence indicators in retail trade and services, which generally move similarly, recorded signifi-cant declines of 19 and 15 percentage points on the pre-vious month, and 24 and 18 percentage points in year-on-year terms respectively. Pessimism regarding the business outlook is being seen not only in the retail trade and service sectors, but also in the construction sector, where the confidence indicator was down 27 percentage points in year-on-year terms and down 13 percentage points on October. This large decline in confidence in the sectors of construction, retail trade and services, i.e. those sectors that in recent years have been very dy-namic, is a sign of the deepening negative trends in the economic cycle.

The consumer confidence indicator declined again in November, reaching its lowest level since measure-ment began in 1996. It was down 14 percentage points in year-on-year terms in November, and down 16 per-centage points from the previous month, to reach a level 22 percentage points down on last year’s average. Con-sumers were most pessimistic regarding unemployment in the next 12 months. This is also being reflected in the major purchases suitability indicator, which was down 39 percentage points in year-on-year terms and down 27 percentage points from the previous month. These as-

sessments are similar to the expectations of consumers throughout Europe, where consumers are adjusting their behaviour to the deterioration in the economic climate and the unfavourable developments in the international economic environment by reducing spending and opting for cheaper purchases.

There were no signs of a the reversal in the economic cycle on the labour market on September, as growth in the workforce in employment remained high. As in the three preceding months, the workforce in employment was up 3.0% in year-on-year terms in September, and was up 0.6% on August, slightly above the usual sea-sonal rise for this month. September’s year-on-year growth in the workforce was actually slightly higher than

-40

-30

-20

-10

0

10

20

30

40

2005 2006 2007 2008

manufacturingservicesconsumer

points of balance, seasonally adjusted

Confidence indicators

Source: SORS.

-35

-30-25

-20

-15-10

-5

0

5

10

15

2005 2006 2007 2008

confidence indicator in servicesconsumer confidence indicatorconfidence indicator in manufacturing

Confidence indicators - seasonally adjusted

annual difference in balance*, in percentage points

Source: SORS, Bank of Slovenia calculations. l l ti

* balance is the difference between positive and negative answers, expressed in percent

-20

-10

0

10

20

30

40

2005 2006 2007 2008

Labour forceRegistered unemployed personsPersons in employment

Labour market

y-o-y changes in thousands

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





in the previous months at 2.0%, while the current rate of growth was 0.4%, which is comparable to the rate in the same month in previous years. In line with trends in growth in value-added in the last year, the largest year-on-year increases in employment were recorded by the sectors of construction (12.0%) and real estate, renting and business activities (8.3%). The seasonally adjusted registered unemployment rate in September was down slightly from August at 6.4%. The survey unemployment rate in the third quarter of 2008 was down slightly on the second quarter at 4.1%.

Year-on-year growth in public sector wages was high in September, as a result of the new wage system, but was lower than in August as a result of one-off factors. The public sector changed over to a new wage system with its August wage payments, and the payment also included a partial wage settlement backdated to May, when the changeover to the new wage system was originally to have been made. Because the settlement was fully included in the payment of August’s wages, the average gross wage in the public sector in September was 2.9% lower than in August. Year-on-year growth in

the average gross wage remained high in September at 12.9% (compared with 16.6% in the previous month), while growth in the net wage was slightly lower at 11.5%. The health sector recorded the highest wage growth in the public sector in September (21.2%). Compared with the moderate growth in previous years, the other branches of the public sector also recorded high growth: public administration recorded wage growth of 13.3%, other services growth of 10.5% and the education sector growth of 7.3%.

Wage growth also remains high in the private sector. Year-on-year growth in the average gross wage in the private sector stood at 10.7%, while the rate for the net wage was 10.0%. The average gross wage in Slovenia was up 11.2% in year-on-year terms in September. The fastest wage growth in the private sector was recorded by the sectors of construction (11.5%) and financial interme-diation (11.1%), while utilities recorded the lowest rate of 7.4%.

The index of the nominal effective exchange rate as measured by the harmonised competitiveness indica-tor depreciated in October, in both monthly and year-on-year terms. October’s decline of 0.6% in the nominal effective exchange rate of the euro against a basket of foreign currencies came primarily as a result of the record falls of 7.8% against the US dollar, 12.8% against the yen, and 4.7% against the Swiss franc, while the euro also fell against the pound sterling by 1.6%. After six con-

2008 20082005 2006 2007 Jan.-Sep. Sep.

Average gross wage 1,157 1,212 1,284 1,362 1,400

Average net wage 6.2 5.1 7.9 8.3 10.4Average gross wage 4.9 4.8 5.9 8.8 11.2 -Private sector (excl. L..O)* 5.4 5.3 6.8 9.0 10.7 -Public sector (L..O)* 3.3 3.4 4.1 8.6 12.9Real wage** 2.3 2.2 2.3 2.0 5.4Unemployment rate (ILO) 6.6 6.0 4.9 4.5 4.1(Q3)Registered unempl. rate 10.2 9.4 7.7 6.7 6.3

Persons in employment 813.1 824.8 854.0 877.3 885.3Persons in paid employment 731.6 741.6 766.0 788.1 796.1Self-employed persons 81.5 83.3 87.9 89.2 89.2

Persons in employment 0.7 1.4 3.5 3.2 3.0Persons in paid employment 1.0 1.4 3.3 3.4 3.2of which: - Enterprises 1.1 1.3 3.1 3.4 3.2 - Small business -0.3 1.7 5.1 3.7 3.2 Sectors: -Private (excl. L..O)* 1.0 1.3 4.0 3.9 3.7 -Public (L..O)* 1.6 1.5 0.8 1.7 1.8

Sources: Statistical Office of the Republic of Slovenia, Bank of Slovenia calculations.* sections of SKD classification** CPI deflator.

thousands

annual growth in %

Labour Market

annual growth in %

EUR

92

94

9698

100102

104106

108110

112

92

94

9698

100102

104106

108110

112

2005 2006 2007 2008

SloveniaAustriaItalyGermanyFrance

index 1999 Q1=100

Harmonised national competitiveness indicators*(42 countries and 14 Euro area countries)

Source: ECB

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




EUROSYSTEM


secutive months of depreciation, which strengthened over the last three months primarily as a result of the euro’s fall against the US dollar, the index returned to its level of June 2007. The year-on-year appreciation has been in decline since April, and in October the nominal effective exchange rate moved into depreciation on a year-on-year basis for the first time in two and a half years, with the depreciation measuring 0.5%.

The price competitiveness of the Slovenian economy as measured by consumer prices depreciated sharply in October. The real effective exchange rate in October was down 1.4 percentage points on September, of which 0.7 percentage points was the result of the nominal effec-tive exchange rate, and 0.7 percentage points was the result of growth in domestic prices declining faster than growth in the basket of foreign prices. In the context of favourable current movements, the year-on-year appre-ciation declined from 1.6% in September to 0.2% in Octo-ber, to reach the same level as in May 2006. Domestic prices growing faster than the basket of foreign prices contributed 0.7 percentage points of appreciation in the real effective exchange rate, while the nominal effective exchange rate reduced this by 0.5 percentage points.

Over the last four years the movement in the price competitiveness indicator in Slovenia has been simi-lar to that in the most important euro area trading partners (Austria, Germany, Italy and France). Al-though the real effective exchange rate depreciated in

both Slovenia and the comparable countries in October, there has been an appreciation since the second half of 2006. The decline in the price competitiveness indicator in October had a major impact on the year-on-year rate of growth, which declined by 1.4 percentage points in Slove-nia to 0.2%, while the year-on-year decline in the partner countries averaged 1.7 percentage points. This meant that the aforementioned trading partners moved into de-preciation. Here it should be noted that year-on-year growth in the indicator for Slovenia in the last year has slightly outpaced the rates in the other countries, which is primarily the result of inflation being higher than in other euro area countries.

The harmonised competitiveness indicator as meas-ured by the GDP deflator reveals an increase in the Slovenian economy’s competitiveness relative to euro area countries in the second quarter. While the indicator has displayed a trend of increase since the end of 2005, this trend came to an end in the second quarter, with the indicator declining by 1.2 percentage points in year-on-year terms to 2.7%. This is an indication of Slo-venia’s GDP deflator growing faster than those of the countries of the euro area, where the indicator has risen or remained the same in the majority of countries. Within the euro area, Slovenia is ranked fourth in terms of the 10-year average of its competitiveness as measured by the GDP deflator, behind Germany, Austria and Finland. This is an indication of the improvement in the competi-tiveness of the Slovenian economy compared with other

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2005 2006 2007 2008

Slovenia Austria ItalyGermany France

year-on-year growth, %

Harmonized competitiveness indicator - ULC* (22 countries in 14 Euro area countries)

Source: ECB.

*based on unit labour costs for the total economy

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4

6

-4

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2005 2006 2007 2008

SloveniaAustriaItalyGermanyFrance

y-o-y growth rates in %

Harmonised national competitiveness indicators* (42 countries and 14 Euro area countries)

Source: ECB

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





euro area countries.

The movement in the harmonised competitiveness indicator in terms of unit labour costs in the economy as a whole was relatively favourable for Slovenia in the second quarter compared with the euro area countries. The cost competitiveness indicator in the sec-ond quarter was down 1.5 percentage points on the first quarter at 1.3%, while it rose in the other euro area coun-tries. The rise of 4.9% in unit labour costs, the rise of 2.8% in gross wages, the decline of 0.9% in productivity and the rise of 0.3% in employment were factors in the year-on-year appreciation. The change since the final quarter of 1998 reveals Slovenia to be ranked third in the euro area in terms of cost competitiveness, behind Ger-many and Austria, which had lower unit labour costs on average over this period.

Year-on-year inflation as measured by the HICP stood at 2.9% in November, down 1.9 percentage points on October. In the inflation breakdown there was a de-cline in year-on-year growth in November in all price sub-categories other than food. Year-on-year growth in energy prices declined from 9.8% to -3.5% in November, taking the contribution made to annual inflation by this sub-category from 1.3 percentage points to -0.3 percent-

age points. In addition, growth in services prices declined from 5.0% to 4.8%. Year-on-year growth in non-energy industrial goods prices declined from 2.6% to 2.3%. The main factor in the decline in growth of non-energy indus-trial goods prices was lower growth in prices of clothing and footwear comparing with the same period last year. Growth in food prices increased from 4.5% to 4.7% in November due to higher prices of processed food.

Core inflation also decline in November in line with the slowdown in domestic economic activity, but be-cause of still high growth in nominal labour costs, the decline was less significant. Year-on-year growth in the harmonised index of prices excluding energy, food, alcohol and tobacco in November was down 0.3 percent-age points on October, reaching 3.6%. The slowdown in the index is primarily attributable to slower growth in non-energy industrial goods and services prices. Core infla-tion expressed as the index of growth in prices excluding energy and unprocessed food remained unchanged at 4.1% in November.

Growth in industrial producer prices on the domestic market is still slowing gradually, and stood at 4.8% in year-on-year terms in October, down 0.9 percentage points on September. The lower monthly growth was the result of slower growth of prices in all sub-categories than in the same period last year. The main factor in the lower year-on-year growth in manufactured goods prices was commodity prices, which recorded growth of 3.6% in

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2005 2006 2007 2008

Maastricht price stability criterionSlovenia, 12-month average of year-on-year HICP rates

%Maastricht price stability criterion

Source: Eurostat, Bank of Slovenia calculations.

3 Price Developments

Oct.08 Nov.08 Nov.07 Nov.08

HICP 4.8 2.9 5.9 0.9 -0.9services 5.0 4.8 5.3 0.3 0.2ind. goods ex. energy 2.6 2.3 2.0 0.8 0.5food 4.5 4.7 8.8 0.0 0.2energy 9.8 -3.5 11.1 4.2 -8.4Core inflation indicatorsex. Energy 4.0 3.9 5.1 0.4 0.3ex. Energy, food, alco.,tobacco 3.9 3.6 3.8 0.6 0.3PPI Sep.08 Oct.08 Oct.07 Oct.08total 4.8 4.0 4.0 0.2 -0.6domestic 5.7 4.8 6.1 0.6 -0.3non-domestic 3.9 3.3 2.1 -0.3 -0.9

annual growth in %

Price Developments

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

Year on Year Average of last 12 months

Monthly




EUROSYSTEM


October, down 2.1 percentage points on September. Prices of intermediate goods recorded year-on-year growth of 4.6%, down 1.4 percentage points on Septem-ber, while growth in consumer goods prices declined from 5.3% to 5.1%. The largest contribution to the decline came from prices in the manufacture of metals and fabri-cated metal products, and the manufacture of machinery and equipment. Prices of capital goods recorded year-on-year growth of 4.7% in October, down 0.9 percentage points on September. As in Slovenia, year-on-year growth in manufactured goods prices also declined in the euro area in September, to 7.9%. The fastest growth in the euro area continues to be recorded by energy prices (20.3% in September), and prices of intermediate goods

(5.8%).

The expected cooling of the economy could acceler-ate the further decline in inflation in the medium term, but still-high growth in nominal labour costs could retard decline in core inflation in the short term. Year-on-year inflation also decline in the euro area in Novem-ber, to 2.1%. The gap narrowed between the 12-month average of growth in the HICP in Slovenia (5.9% in No-vember), and the Maastricht price stability criterion of 4.2% calculated in October. Given the cooling industrial production and the slowdown in economic activity and aggregate demand, core inflation can be expected to continue falling gradually in the future. The still-high growth in nominal labour costs remains the main risk of a short-term slowdown in the fall in core inflation.

September’s current account deficit was below-average, the year-on-year deterioration in the current account position ceasing temporarily. At EUR 0.15 billion, September’s current account deficit was EUR 0.01 billion less than in the same month last year, and took the cumulative deficit over the first nine months of the year to EUR 1.7 billion. Despite September’s year-on-year de-

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10year-on-year growth, %

2005 2006 2007 2008

intermediate goodscapital goodsconsumer goodstotal

Output price indices of the domestic market


4 Balance of Payments

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2005 2006 2007 2008

Sloveniaeuro area

year-on-year rate, %HICP excluding energy, food, alcohol and tobacco

Source: Eurostat, Bank of Slovenia calculations.

-10-8-6-4-202468

101214161820

2005 2006 2007 2008

energy other goodsservices food-unprocessed f. -processed f.HICP

year-on-year growth, %

Individual price categories






cline, the current account deficit over the last 12 months remained unchanged at EUR 2.3 billion or 6.5% of GDP, which is just over 2 percentage points more than in 2007. With the trade deficit narrowing, the main contribution to September’s deficit came from the net outflows of capital income and transfers.

The current rate of growth in exports in September slowed slightly from August, while merchandise im-ports accelerated. Only in August and September has the current rate of growth in exports outpaced the current rate of growth in imports this year. The current rate of growth in merchandise exports stood at 7.5% an-nualised in September, just under 1 percentage point higher than the current rate of growth in merchandise imports of 6.6%. Merchandise exports amounted to EUR 1.9 billion in September, up 12.1% on the same month last year, while imports were up 9.6% at EUR 2.1 billion. The result of these movements in merchandise trade was a deficit of EUR 0.17 billion,1 down one-sixth on that re-corded in the same month last year. This September’s relatively high year-on-year growth in merchandise trade can to a great extent be attributed to its larger number of working days compared with the previous September. There were two more working days in this September, or 10% more work hours than in the same month last year, which had a profound impact on both output and mer-chandise exports to the rest of the world.

The gap by which year-on-year growth in merchan-dise exports to non-EU countries outpaces growth in exports to EU Member States widened further. Year-on-year growth in merchandise exports to non-EU coun-tries was 20.3% in September, compared with 7.4% for exports to EU Member States. The situation was re-versed for merchandise imports, with imports from EU Member States recording year-on-year growth of 13.7%, compared with a decline of 4.3% in merchandise imports from non-EU countries. Total merchandise exports in the first nine months of the year were up 5.8% in year-on-year terms, while merchandise imports were up 11.4%. Merchandise trade with EU Member States recorded be-low-average year-on-year growth: 3.5% for exports, and 11.0% for imports. The economic slowdown in Slovenia’s most important EU trading partners, some of which are already officially in recession, was a factor in the rela-tively low growth in merchandise exports. It is expected that they will soon be followed by Slovenia’s other impor-tant trading partners inside and outside the euro area. The decline in sales on EU markets is currently being compensated for by increased sales on and merchandise exports to markets outside the EU, but it will also be im-possible to avoid stagnation in exports to these markets should the economic crisis prove sustained. Year-on-year growth in merchandise exports to non-EU countries is three times that of exports to EU Member States at 11.2%, while growth in merchandise imports stands at 12.7%.

The sole deficit in merchandise trade is with EU Mem-ber States. The merchandise trade deficit over the first nine months of the year was up EUR 1 billion in year-on-year terms at EUR 2.2 billion, or 6.4% of GDP. Only the deficit with EU Member States widened, from EUR 2.1 billion last year to EUR 3.1 billion over the first nine months of this year, while the surplus with non-EU coun-tries remained at the level generated in the same period last year of EUR 0.9 billion. Coverage of merchandise imports by exports fell by 4.5 percentage points com-pared with the same period last year to stand at 87%.

A recession reduces foreign demand, but also re-

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

2005 2006 2007 2008

current accountservicesincome and transfersgoods

Components of current account12 month moving sum, GDP %

Source: Bank of Slovenia.

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 in September stood at EUR 222 million.




EUROSYSTEM


duces energy prices, commodity prices and food prices, which has an overall impact on the current account position. Lower foreign demand will lead to a decline in output and exports of merchandise and ser-vices. Lower import costs mean that falls in energy prices and commodity prices lead to lower imports in value terms, and a more favourable current account position. The fall in energy prices and commodity prices began in the middle of the third quarter, and continued in the first two months of the final quarter. Assuming that prices re-main at their October levels in the remaining months of the final quarter (in fact they have continued to fall), the lower prices are expected to have beneficial effects on the value of merchandise imports. Given the aforemen-tioned price assumptions, and no change in the volume of imports, the terms of trade effect in the final quarter would lead to an improvement of around EUR 0.2 billion in the current account position.

Year-on-year growth in trade in services is slowing gradually, but is still strongly outpacing growth in merchandise trade. Year-on-year growth in exports of services stood at 16.3% in September, just over one-third more than the simultaneous growth of 11.4% in imports of services. The cumulative gap by which exports out-pace imports widened by 1.5 percentage points from Au-gust to 2.8 percentage points in September. With exports of services up 19.8% and imports of services up 17.0% in year-on-year terms over the first nine months of the year, the surplus of trade in services rose by EUR 0.2 billion in

year-on-year terms to EUR 1.3 billion. On the export side, above-average increases have been recorded this year by revenues from operating leasing (205.5%), financial services (98.6%), foreign trade intermediation (61.0%) and construction and assembly work in the rest of the world (41.3%). The financial and economic turmoil will have a profound impact, via an economic slowdown, re-sulting in more moderate future growth in revenues from these services. Revenues from transport services are also expected to decline sharply in the future, as they are closely correlated with the dynamics in merchandise trade. Tourism revenues in the first nine months of the year were up 12.2% in year-on-year terms, just over half of the simultaneous increase of 24.9% in expenditure by resident tourists in the rest of the world. The recession means that the risk of unemployment and uncertainty on the domestic and foreign labour markets is rising, conse-quently revenues from and expenditure on tourism can be expected to decline in the future.

The net deficit in factor income in September more than doubled in year-on-year terms to reach EUR 0.1 billion, taking the cumulative deficit in the last 12 months to EUR 0.9 billion, or 2.5% of estimated GDP. The deficit in labour income widened further by EUR 7

Balance of last 12 2008 2008Payments 2006 2007 12 mths Jan-Sep. Sep.

flows in EUR millionsCurrent account -771 -1,455 -2,326 -1,663 -146% of GDP -2.5 -4.2 -6.5 -6.1 …Goods and services -158 -473 -1,092 -626 -19% of GDP -0.5 -1.4 -3.0 -2.3 …Openness coefficient 136 145 146 146 …Exports 20,601 24,089 25,664 19,553 2,379% of GDP 67.7 69.9 71.5 71.6 …Goods 17,028 19,798 20,731 15,669 1,915Services 3,572 4,291 4,934 3,884 464- Tourism 1,555 1,811 1,988 1,624 204- Transportation 1,058 1,259 1,450 1,105 120Imports -20,759 -24,562 -26,756 -20,179 -2,398% of GDP -68.2 -71.3 -74.6 -73.9 …Goods -18,179 -21,464 -23,275 -17,549 -2,085Services -2,580 -3,098 -3,481 -2,630 -312- Tourism -772 -831 -993 -813 -93- Transportation -601 -734 -788 -588 -70Labour income 107 78 12 -15 -7Investment income -547 -786 -875 -736 -95Current transfers -173 -274 -372 -286 -25

annual growth in %Ex. of Goods and Serv. 15.7 16.9 9.5 8.8 12.9Im. of Goods and Serv. 15.9 18.3 12.5 12.2 9.8Exports of Goods 16.6 16.3 7.5 6.3 12.1Imports of Goods 16.3 18.1 11.6 11.5 9.6Exports of Services 11.2 20.1 18.8 19.8 16.3Imports of Services 12.5 20.1 18.4 17.0 11.4Source: Bank of Slovenia.

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-4.0

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-1.0

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3.0

2005 2006 2007 2008

totaleuro areaoutside euro area

Goods trade balance

EUR billions, 12 month moving sum






million in September, but despite this year’s poorer re-sults the cumulative position over the last 12 months re-mained at a surplus of EUR 12 million. The deficit in capi-tal income over the last 12 months widened by EUR 0.1 billion in September to EUR 0.9 billion, or 2.5% of GDP during the period. Alongside a smaller surplus from in-vestments in securities, the net outflow in FDI contributed EUR 40 million to the deficit in factor income, while the largest contribution of EUR 75 million came from net in-terest payments to the rest of the world. Interest pay-ments on the external debt were up 50.3% in year-on-year terms, banks accounting for 62.7% of this, and households for 36.3%. September’s deficit in transfers was down just over one-third in year-on-year terms at EUR 25 million, thereby leaving the cumulative deficit over the last 12 months at EUR 0.4 billion for the third consecutive month, or 1.1% of estimated GDP during the period.

The net financial inflow, i.e. the surplus of financial inflows from the rest of the world over financial out-flows to the rest of the world, which was relatively large in the first half of the year, declined in the third quarter. The net financial inflow amounted to EUR 0.8 billion in the first quarter, and to EUR 0.7 billion in the second quarter, but to just EUR 0.3 billion in the third quarter. The inflow was primarily into the general govern-ment sector in the first quarter, but primarily into the pri-vate sector in the second and third quarters. The large net financial inflow into the general government sector in the first quarter was primarily the result of February’s release of government bonds in the amount of EUR 1.1 billion.

In September the financial turmoil was reflected in a decline in both the private sector’s liabilities and claims vis-à-vis the rest of the world. In the first eight months of the year the private sector’s liabilities to the rest of the world increased by EUR 4.2 billion, while its claims against the rest of the world increased by EUR 3.3 billion. As a result of the financial turmoil there is less opportunity to borrow and also greater investment risk, which in September brought a decline in the private sec-tor’s liabilities (EUR 0.2 billion) and claims (EUR 0.3 bil-lion).

The net financial inflow into the private sector in-creased over the first five months of the year, but was negligible between June and September. The net financial inflow into the private sector was EUR 0.7 billion over the first five months of the year, but totalled just EUR 0.3 billion between June and September. The smaller net financial inflow into the private sector was partly the result of seasonal factors, and partly the result of lower demand for loans, and the consequent diminish-ing need for banks to seek additional funding from the rest of the world.

Loans to banks from the rest of the world and depos-its by non-residents were again prominent among financial liabilities to the rest of the world in the sec-ond quarter, but actually declined in the third quarter primarily as a result of the deepening financial tur-moil. Of the total increase of EUR 2.7 billion in financial liabilities to the rest of the world in the second quarter, inflows via loans to banks from the rest of the world ac-counted for EUR 1.3 billion, and deposits by non-residents for EUR 0.5 billion. Of the inflows via loans from the rest of the world, June’s figure amounted to EUR 1.1 billion, primarily as a result of two major transactions.

last 122006 2007 months 2007 2008

flows in EUR million 1. Private sector -534 -2,492 2,107 -3,622 976 Claims -5,031 -9,400 -4,647 -7,841 -3,088 Capital transfers -331 -365 -381 -209 -224 Outward FDI -687 -1,319 -1,068 -1,062 -810 Portfolio investments -2,094 -3,705 -464 -3,445 -204 Trade credits -442 -394 -540 -532 -679 Loans -733 -1,890 -853 -1,263 -227 Currency and deposits -743 -1,727 -1,341 -1,330 -944 - Households -805 -802 -710 -656 -563 - Banks 37 -870 -318 -612 -59 - Enterprises 25 -55 -314 -62 -321 Liabilities 4,497 6,908 6,754 4,219 4,065 Capital transfers 159 188 203 117 133 Inward FDI 513 1,050 1,178 747 875 Portfolio investments 176 94 -65 67 -92 Trade credits 479 511 812 244 545 Loans 2,179 3,883 3,685 2,533 2,335 - Enterprises 736 529 645 383 499 - Banks 1,443 3,355 3,040 2,150 1,836 Deposits at banks 991 1,182 940 511 269 2. Government 383 900 778 846 724 3. Bank of Slovenia 1,287 3,639 63 3,633 57


Jan.-Sep.

Signs: inflows or increases in liabilities (+), outflows or increases in claims(-). Increases in foreign exchange reserves (-), increases in debt (+).

Financial and Capital Account




EUROSYSTEM


Thus inflows via loans to banks from the rest of the world in the second quarter were more than double those in the first quarter. Liabilities via loans to banks from the rest of the world and deposits by non-residents at domestic banks actually declined in the third quarter, partly as a result of seasonal effects, and partly in association with the financial turmoil. Liabilities from loans to banks from the rest of the world and deposits by non-residents de-clined by EUR 0.4 billion in September. FDI amounted to EUR 0.9 billion in the first nine months of the year, these inflows having remained unchanged in the last two years at around 3.5% of GDP. Inflows of trade credits were negligible between June and August as a result of sea-sonal factors, but increased in September.

Corporate borrowing in the rest of the world in-creased in the third quarter, and was approximately three times higher than in the previous quarters. Cor-porates borrowed EUR 0.2 billion in the first half of the year, and EUR 0.3 billion in the third quarter, thereby bringing an end to the trend of declining direct corporate borrowing in the rest of the world in recent months.

Portfolio investments and loans to the rest of the world were prevalent on the claim side in the second quarter, but declined in the third quarter, primarily as a result of the financial turmoil. Of the total increase of EUR 1.9 billion in claims against the rest of the world in the second quarter, portfolio investments and bank loans to the rest of the world each accounted for EUR 0.5 bil-

lion. Portfolio investments declined by EUR 0.3 billion in the third quarter, and bank loans to the rest of the world by EUR 0.2 billion. Outward FDI in the second quarter was double that in the first quarter, and remained at this level in the third quarter.

The net external debt increased by EUR 2.8 billion in 2007, and by EUR 2.6 billion over the first nine months of 2008. Both the gross external debt and gross external claims declined in September, as a result of the effects of the financial turmoil. The net external debts of the banking sector and the general gov-ernment sector increased by EUR 2.0 billion and EUR 0.5 billion respectively in the first nine months of the year, while the net external debt of other sectors increased by EUR 0.1 billion. The net external debt stood at EUR 8.8 billion at the end of August, the gross external debt standing at EUR 39.8 billion, and gross external claims at EUR 31.1 billion. Both the gross external debt and gross external claims declined in September, by EUR 0.5 billion and EUR 0.2 billion respectively.

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directinvestment

portfolioinvestment

tradecredits

loans deposits

200620071-9 20071-9 2008

Liabilities towards rest of worldflows in EUR billion


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directinvestments

portfolioinvestments

commercialcredits

loans households

200620071-9 20071-9 2008

Claims on rest of worldflows in EUR billion






In its autumn forecasts the European Commission made upward revisions to the forecasts for the gen-eral government deficit for the European Union and the euro area. For Slovenia it is estimated that this year there will be a deficit of 0.2% of GDP, a surplus of 0.5% of GDP having been recorded last year. The European Commission is anticipating that the decline in economic activity will have a strong adverse impact on public finances in the next two years. These are strongly linked to the general macroeconomic trends, and are also subject to high uncertainty. For this reason, in its autumn forecasts in early November the European Commission predicted a widening of the deficit in the EU from 0.9% of GDP in 2007 to 1.6% of GDP in 2008, and an increase in the deficit in the euro area from 0.6% of GDP in 2007 to 1.3% of GDP in 2008. It is also expecting further deterio-

rations in 2009 and 2010. For Slovenia it is forecasting deficits of 0.2% of GDP in 2008 and 0.7% of GDP in 2009, and further decline in the public debt to 20% of GDP by 2010.

The general government sector recorded a surplus of EUR 445 million or 1.8% of GDP in the first eight months of the year. The available figures indicate that

5 Public Finance

The National Assembly adopted the Act Amending the Banking Act, which has introduced an unlimited guar-antee for the net bank deposits of entitled persons pursuant to Article 310 of the Banking Act until 31 Decem-ber 2010. The law entered into force on 20 November 2008. Banks established in Slovenia guarantee the payment of a deposit at a bank against which bankruptcy proceedings have been initiated, up to a net deposit balance of EUR 22,000, while the state guarantees the remainder above this amount in the manner set out by law. Should banks es-tablished in Slovenia be unable to secure sufficient funds to pay out the guaranteed deposits, the state also guaran-tees these deposits on the basis of a proposal by the Bank of Slovenia. The unlimited guarantee applies until 31 De-cember 2010 at the latest.

At the same session the National Assembly adopted the Act Amending the Public Finance Act. This law stipu-lates that in order to mitigate the effects of the global financial turmoil and to maintain the stability of the domestic fi-nancial system the state may undertake additional borrowing for:

• loans to credit institutions as defined by the banking act, and insurance corporations, reinsurance corporations and pension companies established in Slovenia,

• government guarantees for the refinancing of credit institutions established in Slovenia up to a total amount of EUR 12 billion;

• capital investments by the government in credit institutions, insurance corporations, reinsurance cor-porations and pension companies established in Slovenia.

The Ministry of Finance is also planning to release new government bond on the basis of the amended Public Finance Act. The new bond is expected to be a 5-year bond with a total release value of EUR 1 billion, although the maturity will not be predetermined, but will depend on the market conditions at release. The release date of the new bond is not known, but it is expected at the earliest opportunity, and thus like the maturity depends on the current con-ditions on the financial markets.

Box: The National Assembly has adopted Acts Amending the Banking and Public Finance Act

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2005 2006 2007 2008

Balance (right)*Revenues*Expenditures*Balance, ESA 95 ( % GDP)

Public finance developmentsannual growth in %, 12 months in EUR mio, 12 months* national methodology

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




EUROSYSTEM


the general government sector again recorded a sur-plus in September. The general government surplus in the first eight months of the year was EUR 301 million higher than in the same period last year. The majority of the surplus was generated by the state budget, while the Health Insurance Institute is also disclosing a larger sur-plus than last year. It can be concluded on the basis of the available figures for the realisation of the state budget that the general government sector again recorded a sur-plus in September, compared with a deficit last year. The Health Insurance Institute recorded a surplus of EUR 71 million over the first nine months of the year, up slightly on the same period last year. Local government recorded a surplus over the first eight months of the year, albeit less than in the same period last year. This was primarily the result of rapid growth in investment expenditure and transfers, which is typical for August.

General government revenues recorded high growth in the first eight months of the year, direct taxes in particular. Tax inflows based on total wages were high in September and October. Revenues in the con-solidated general government accounts in the first eight months of the year were up 11.3%, mostly as a result of personal income tax, VAT and social contributions. Reve-nues from personal income tax in the first ten months of the year were up one-third, tax revenues from employ-ment income recording year-on-year growth of 14% in the last two months. Revenues from corporate income tax in the first ten months of the year were up 15% on the same period last year. Growth in VAT revenues in the last three

months declined slightly, but the year-on-year rate re-mains around 13%. Revenues based on wages and em-ployment continue to record year-on-year growth of more than 10%. Social contributions and personal income tax prepayments were up in year-on-year terms in Septem-ber and October, leading to the conclusion that with growth in employment unchanged, the main factor in September's increase was wage increases, particularly in the public sector. Revenues from payroll tax were down by 40%, in line with the cuts in tax rates. The expected economic slowdown will also have an impact on reve-nues.

General government expenditure in the first eight months of the year was up 8% in year-on-year terms, 3.3 percentage points less than the increase in reve-nues. Expenditure on goods and services, invest-ment expenditure and transfers recorded above-average growth. Expenditure on goods and services in the first eight months of the year was up 15% in year-on-year terms, less than in the first half of the year. Invest-ment expenditure grew strongly again in August, particu-larly in local government. The largest increase was re-corded by funding for new build, reconstructions and ad-aptations, which accounts for more than a half of all in-vestment expenditure. The highest year-on-year growth was recorded by funding for the purchase of land and project feasibility studies. With the payment of August’s wages, the first of four public sector wage increases aimed at gradually eliminating wage discrepancies was made in September. The figures for the movement of average wages in the public sector are already showing the effects of the new wage system.

Expenditure on transfers to individuals and house-holds recorded year-on-year growth of 8% in the first eight months of the year, while growth in expenditure on pensions was 1 percentage point less. The move-ments of the different categories varied considerably. Pensions accounted for the majority of transfers, and were up 7% over the aforementioned period. Year-on-year growth in the number of old age pensioners has been around 3.2% in recent months, while the total num-ber of pension claimants during the first nine months of the year was up around 1.6% in year-on-year terms. Pen-

2007 Jan. - Aug. annual% GDP str.(%) 2007 2008 gr. rate

EUR millionsRevenue 14,006 41.8 100.0 8,922 9,928 11.3Tax revenue 12,758 38.0 91.1 8,218 9,132 11.1- goods and ser. 4,499 13.4 32.1 2,861 3,093 8.1- soc.sec.contr. 4,598 13.7 32.8 2,964 3,298 11.3- income, profit 2,918 8.7 20.8 1,922 2,355 22.5From EU budget 348 1.0 2.5 190 219 14.8Other 900 2.7 6.4 514 578 12.5Expenditure 13,915 41.5 100.0 8,778 9,483 8.0Current exp. 5,951 17.7 42.8 3,845 4,150 7.9Current transf. 6,144 18.3 44.2 4,115 4,396 6.8Capital exp.,tran. 1,465 4.4 10.5 602 693 15.2To EU budget 356 1.1 2.6 217 245 13.0GG surplus/def. 91 0.3 144 445

Source: Ministry of finance, Bank of Slovenia calculations.

Consolidated general government (GG)

accounts





sions were increased by 4.6% in November, wage trends having been taken into consideration. Social security transfers increased by 113% in August, as a result of the adoption of a law on a one-off bonus, payments of which amounted to around EUR 31 million. They increased by 15% overall in year-on-year terms during the first eight months of the year. Family benefits and parental allow-ances were up 13% in year-on-year terms, and sick pay was up 9%, while year-on-year growth in unemployment payments remained negative.

Growth in total assets continues to decline. Year-on-year growth in total assets fell by a further 1.3 percentage points in October to 16.7%. The gap between the current rates of growth in total assets at the banks under majority foreign ownership and the domestic banks widened. The trend of decline in growth in loans to non-banking sectors continued in October. The main factor in the decline in total assets was again (debt) securities held among banks’ assets, which is a reflection of the decline in the proportion of total assets that they account for and a de-cline in the banking system’s secondary liquidity. Financ-ing via the ECB strengthened further as a source of bank funding.

Lending growth is declining. Year-on-year growth in lending to non-banking sectors declined slightly in Octo-ber to 23.5%, despite the relatively high net increase in

loans. The main factors in this were loans to OFIs and households, which were higher than this year’s average. The gap between growth in lending at the banks under majority foreign ownership and the domestic banks nar-rowed slightly in October, but remains relatively large. At 18.5%, lending growth at the domestic banks is 15 per-centage points less than that at the banks under majority foreign ownership. In contrast to previous months, long-term loans were prevalent in October’s lending to non-banking sectors.

Year-on-year growth in loans to non-financial corpora-tions (NFCs) declined to 24.9%, and October’s increase in these loans was less than this year’s average. The large domestic banks accounted for more than half of October’s net increase in loans to NFCs. Growth in loans at the large domestic banks has almost halved since the beginning of the year to 16.4%. Growth in loans at the small domestic banks and the banks under majority for-eign ownership was at least double this rate in October. Year-on-year growth in household lending declined, but is still in excess of 19%. There was a sharp increase in household lending in October compared with the other months of this year, to a figure of EUR 140 million. Hous-ing loans accounted for almost four-fifths of October’s increase in loans to households. Growth in loans to households at the banks under majority foreign owner-ship was double that at the domestic banks.

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

6 Banking System*

- 20

- 10

0

10

20

30

40

50

2005 2006 2007 2008

Credits to nonbanksSecuritiesTotal assets

Growth of lendingyear-on-year, %


2008 y.o.y2006 2007 Jan.-Oct. growthEUR millions; growth in %

Interest income 1,421.2 1,954.0 2,140.7 36.8 Interest expense 731.3 1,137.7 1,366.7 51.2 Net interest income 689.8 816.4 774.1 17.1 Non-interest income 525.8 616.7 355.3 -32.2 Gross income 1,215.6 1,433.0 1,129.4 -4.7 Operating costs 702.1 755.9 627.6 5.7 Net provisions 119.8 163.0 103.8 -13.2 Profit before tax 393.7 514.2 398.0 -15.5 Taxes 90.9 102.5 … ... Profit after tax 302.8 411.7 … …


Income statement




EUROSYSTEM


Bank funding via the ECB is increasing. The net in-crease in liabilities to foreign commercial banks ac-counted for 43% of October’s net increase in total assets. Two-thirds of the total net funding from foreign commer-cial banks went to the banks under majority foreign own-ership. Bank funding via the ECB strengthened further in October, although the increase in liabilities to the ECB was reflected in a simultaneous increase in cash held at banks and claims against the ECB. The latter indicates that a portion of the funding obtained has not been placed by banks on the interbank market or within the economy, but has instead been recycled to the ECB. De-posits by non-banking sectors declined in October, with corporates the largest factor in the decline. In terms of maturity, there was an increase in deposits in the 1 year to 2 years category, while deposits with other maturities declined.

The banking system’s profit remains behind that in the same period last year. With non-interest income down on that in the same period last year, the solid growth in net interest means that the breakdown of the banking system’s gross income has changed significantly since last year, banks having generated more than two-thirds of their gross income via interest income. October’s losses from trading were greater than September’s, as a result of which this year’s net income from this source is down significantly on last year, which is reducing the banking system’s non-interest margin. This has fallen to 1%, calculated on the basis of total assets over the last

12 months. The overall financial intermediation margin has thereby approached 3%. Growth in operating costs remains moderate, with provisioning and impairment costs down on last year, although the gap has been nar-rowing in recent months.

The average monthly market yield on German long-term government securities declined by 21 basis points in October, while that on Slovenian govern-ment securities declined by 2 basis points, the spread thus widening to 78 basis points. On 29 Octo-ber 2008 the Federal Reserve cut its key interest rate by 50 basis points to 1%, the ECB following suit on 6 No-vember 2008 to cut its key refinancing rate by the same amount to 3.25%. On the capital markets, there was great volatility in share prices, as a result of the discour-aging economic figures. The European Commission and the IMF cut their official forecasts for economic growth, commodity prices falling as a result. The American S&P index lost 16.8% in October, and a further 11.3% by 18 November. The DJ EuroStoxx index for western Europe lost 15.9% in October, and a further 7.8% by 18 Novem-ber.

1.0

12.7

2.5 2.61.3

15.1

2.2 2.4

16.3

2.0 2.31.5

18.5

1.9 2.31.1

13.0

1.7 2.21.4

0

5

10

15

20

ROA ROE Operatingexpenses/assets

Net interestmargin*

2005200620072007 (1-10)2008 (1-10)

*on average interest-bearing assets

Banking performance indicators%


7 Domestic Financial Markets

3.0

3.5

4.0

4.5

5.0

5.5

2005 2006 2007 2008

GermanySlovenia

in %Harmonised long-term interest rates*

* Secondary market yields of government bonds with maturities of close to ten years.

Source: Bank of Slovenia, ECB.





The market capitalisation of bonds on the Ljubljana Stock Exchange declined by 1% in October. The monthly volume of trading in bonds was the highest this year, and accounted for more than one-third of the total volume to date in 2008.

The market capitalisation of shares on the Ljubljana Stock Exchange declined by 12.5% in October, in the context of a fall of 18.7% in the SBI20. The decline in share prices continued in October. The international agreement to coordinate the response for the financial sector brought a short-term increase in share prices in the middle of the month, but risk aversion subsequently prevailed again, and was followed by a decline in share

prices. There were 15 long retail certificates issued di-rectly on Slovenian shares and 21 long certificates issued on indices including Slovenian shares that reached the knock-out barrier during October and the first 18 days of November, which added momentum to the fall in share prices.2 The SBI20 had lost a further 11.3% by 18 No-vember, falling to its level of May 2006. The P/E ratio stood at 13.4 in October. October’s volume of trading in shares was slightly above this year’s monthly average, and just under one-fifth higher than in September. The majority of trading was in shares on the prime market, Krka accounting for more than half of the total.

The proportion of the market capitalisation of shares on the Ljubljana Stock Exchange accounted for by non-residents rose by 19 basis points in October to 6.49%. Non-residents, those from Germany and Croatia in particular, made net sales of EUR 1.1 million in domes-tic shares, but the figure becomes a net purchase of EUR 37 million if the takeover of Ljubljana Stock Exchange by Wiener Börse is included. Non-residents made net sales of EUR 20.4 million in Slovenian bonds. Residents of Germany, Luxembourg and Austria were prominent among the net sellers of bonds, while residents of the UK made net purchases of Slovenian bonds. The heaviest trading was again in government bonds.

Residents made net sales of EUR 53.6 million in for-eign shares and EUR 388.9 million in foreign bonds in

0

5

10

15

20

25

30

35

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2005 2006 2007 2008

Market cap. sharesMarket cap. bondsTR shares (right)TR total (right)

The Ljubljana Stock Exchange:Market capitalisation and turnover ratio*

EUR billion, % (right)

* TR - turnover ratio; monthly turnover divided by market capitalisation at the end of period.

Source: Ljubljana Stock Exchange.

- 20

- 16

- 12

- 8

- 4

0

4

8

12

16

2005 2006 2007 2008

SBI 20NAV MF*BIO

Slovenian stock market indicesin %

Source: Ljubljana Stock Exchange, Vzajemci.com, Securities Market Agency, Bank of Slovenia calculations.

* net asset value of mutual funds; the per-share value of mutual funds.

2 Source: http://www.boerse-stuttgart.de

-250-200-150-100-50

050

100150200250300

2005 2006 2007 2008

In sharesIn bonds

EUR million

Net foreign investments in Slovenia

Source: Central Securities Clearing Corporation, Bank of Slovenia calculations.




EUROSYSTEM


October. The main net sellers of shares were the bank-ing sector and the household sector, which sold shares from euro area countries, the former Yugoslav republics and the US. The banking sector also made net sales of bonds, primarily those of issuers from euro area coun-tries, while the insurance corporations and pension funds sector made net purchases of bonds from these countries and from the UK, Sweden and Denmark.

The assets of domestic mutual funds declined by 3.8% in September and by 16.5% in October to EUR 1,754 million. There were net outward payments from domestic mutual funds of EUR 56.3 million in September and EUR 72.8 million in October. Over the two months the largest net outward payments were from equity funds (EUR 84 million) and balanced funds (EUR 43 million). The net outward payments from bond funds amounted to EUR 3 million, while the relative importance of money-market funds is increasing, investors having made net inward payments of EUR 1.3 million. The proportion of mutual fund assets held in liquid assets3 increased by 30 basis points in September to 11.2%. The average unit price of domestic mutual funds fell by 14.0% in October, taking the year-on-year change in the average unit price down to -38.9%. November’s negative monthly change in the average unit price of mutual funds investing in the Balkans was the largest to date, at -23.4%, taking the year-on-year change down to -59.6%. The Croatian stock market index lost 26.7% in October, the Macedonian in-

dex lost 32.5%, and the Serbian index lost 34.3%. The fall in prices continued during the first 18 days of Novem-ber. The Croatian index fell by a further 14.7%, the Mace-donian index by 15.8%, and the Serbian index by 5%. Mutual funds investing in countries with their own cur-rency are additionally exposed to foreign-exchange risk, this being reflected in the calculation of the average unit price in euros. By 19 November, the Serbian dinar had fallen by 7.3% against the euro this year, the Macedonian denar by 2.1%, the Hungarian forint by 10.1% and the Polish zloty by 7.1%. The Infond Dynamic equity fund and Infond Global balanced fund were admitted to trading on the stock market in October.

3 Liquid assets include cash, deposits, money-market instruments and government bonds.

-600

-400

-200

0

200

400

600

800

1000

1200

2005 2006 2007 2008

In sharesIn bonds

EUR millionNet Slovenian investments abroad


-80-70-60-50-40-30-20-10

010203040506070

2005 2006 2007 2008

BondBalancedEquityDomestic MF totalRegistered foreign MF

EUR million Net inflows into mutual funds

Source: Vzajemci.com, Securities Market Agency, Bank of Slovenia.

BANKA SLOVENIJE

1-II.Monthly Bulletin, November 2008

STATISTICAL TABLESBANK OF SLOVENIA

EUROSYSTEM

II. STATISTICAL TABLES

1.1.1.1.2.1.3.1.4.1.5.1.6.1.7.

2.2.1.2.2.2.3.2.3.1.

2.4.1.

2.4.2.

2.4.3.

2.4.4.

2.5.2.6.2.7.2.8.2.9.1a.2.9.1b.2.9.2a.2.9.2b.2.10.2.11.2.12.2.13.2.14.2.15.2.16.

3.3.1.3.2.3.3.3.4.3.5.3.6.1.3.6.2.

Money and Monetary Financial InstitutionsMonetary AggregatesConsolidated Balance Sheet of Monetary Financial InstitutionsBalance Sheet of the Bank of SloveniaBalance Sheet of Other Monetary Financial InstitutionsSelected Assets of Other Monetary Financial Institutions by SectorSelected Obligations of Other Monetary Financial Institutions by SectorBalance Sheet of the Bank of Slovenia - instruments

Financial Markets and Payment SystemsBank of Slovenia Interest RatesInterbank Money Market Rates and Indexation ClausesEuropean Central Bank Interest RatesHarmonised Long-term Interest Ratesfor Convergence Assessment PurposesMonetary Financial Institutions - Interest rates on Outstanding Amountsin Domestic CurrencyMonetary Financial Institutions - Interest Rates and Volumes on New Depositsin Domestic CurrencyMonetary Financial Institutions - Interest Rates and Volumes on New Loansto Households in Domestic CurrencyMonetary Financial Institutions - Interest Rates and Volumes on New Loansto Non-financial corporations in Domestic CurrencyGovernment Securities RatesThe Ljubljana Stock Exchange: Turnover by Market Segment and Type of SecuritiesThe Ljubljana Stock Exchange: Market Capitalisation and Turnover RatioThe Ljubljana Stock Exchange: Slovenian Stock Exchange Index and Bond IndexSelected Bank of Slovenia Exchange Rates - Average Rates to 31.12.2006Selected Bank of Slovenia Exchange Rates - End of Month Rates to 31.12.2006European Central Bank exchange rates - Average RatesEuropean Central Bank exchange rates - End of Month RatesTARGET and Giro Clearing transactionsPayment CardsOther Payment Instruments and Innovative Payment SchemesElectronic BankingCredit TransfersDebit TransfersNetwork of Commercial Banks

Balance of Payments and External PositionBalance of Payments 1988-1993Balance of PaymentsCurrent Account by countriesCapital and Financial Account by countriesTrade in goods by countriesInternational Investment Position of Slovenia – AssetsInternational Investment Position of Slovenia - Liabilities

BANKA SLOVENIJE

II.-2 Monthly Bulletin, November 2008

STATISTICAL TABLESBANK OF SLOVENIA

EUROSYSTEM

3.7.1.3.7.2.3.8.3.9.3.10.3.11.3.12.

4.4.1.4.2.4.3.4.4.4.5.4.6.4.7.4.8.

5.5.1.5.2.5.3.5.4.5.5.5.6.

6.6.1.6.2.6.3.6.4.6.5.6.6.6.7.6.8.6.9.6.10.6.11.6.12.6.13.6.14.6.15.6.16.6.17.6.18.

International Investment Position by countries - AssetsInternational Investment Position by countries - LiabilitiesNet external debt position 1994 - 2000Net external debt positionGross External Debt 1994 - 2000Gross External DebtInternational reserves

Public FinanceNon-financial and Financial Accounts (ESA 95) of the General Government sectorNon-financial Account of the General Government sector (ESA 95)Non-financial Account of the General Government sector - share in GDP (ESA 95)Financial Account of the General Government sector (ESA 95)Financial Account of the General Government sector - share in GDP (ESA 95)Revenues and Expenditures of the General GovernmentLending, Repayments and Financing of the General GovernmentCentral budget debt

Financial AccountsNon-consolidated financial assets - outstanding amountsNon-consolidated liabilities - outstanding amountsNet financial assetsNon-consolidated transactions in financial assetsNon-consolidated transactions in liabilitiesNet financial transactions

Non-Financial Accounts and General Economic StatisticsExpenditure on gross domestic productExpenditure on gross domestic product (growth rates)Gross domestic product by activityGross domestic product by activity (growth rates)Industrial production indexIndustrial production index (growth rates)Turnover and new orders in industryTurnover and new orders in industry (growth rates)Business tendency and consumer surveys (part 1)Business tendency and consumer surveys (part 2)Employment by Labour Force Survey (ILO)Unemployment by Labour Force Survey (ILO)Average Wages and SalariesNominal effective exchange rate and Real harmonised competitiveness indicatorsConsumer price indexConsumer price index (growth rates)Industrial producer price indexIndustrial producer price index (growth rates)

BANKA SLOVENIJE

3-II.Monthly Bulletin, November 2008

MONEY AND MONATARY FINANCIAL INSTITUTIONSBANK OF SLOVENIA

EUROSYSTEM

1.1. Monetary Aggregates

Column

Code

2004 31. Dec. 1,370,415 3,239,945 3,980,215 - - - -2005 31. Dec. 1,682,477 3,493,226 3,502,771 - - - -2006 31. Dec. 1,834,106 3,778,032 3,786,146 - - - -

2004 31. Dec. 1,370,415 3,239,945 3,980,215 - - - -

2005 31. Jan. 1,377,076 3,257,449 4,040,803 - - - -28. Feb. 1,346,492 3,260,370 4,028,914 - - - -31. Mar. 1,324,424 3,252,549 4,026,417 - - - -30. Apr. 1,385,288 3,241,657 3,995,258 - - - -31. May. 1,363,173 3,305,095 3,321,548 - - - -30. Jun. 1,455,740 3,363,131 3,374,604 - - - -31. J

BANK OF SLOVENIA EUROSYSTEM MONTHLY BULLETIN...Annual inflation rate 3.1 % November, 2008 General...

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