After reaching the trough in October (-5.3), the economic sentiment index (ESI) strengthened in Slovenia for the second month in a row in December, to a value of 0.8. Its growth was influenced by the improvement of all indicators. In two months, retail trade strengthened by 10 points, consumer confidence by 7, confidence in manufacturing and service activities by 6 points (their impact was greatest due to the composition of the economic climate indicator) and in construction by 5 points. A slightly closer look at the individual questions within five questionnaires reveals that in manufacturing, the expected production (+11) and exports (+8) increased again, while it is positive that stocks of finished products decreased (-3). Order book shrunk by 1 month (from 5 to 4), which means that the company's production will become less stable. In services, assessment of employment growth (+8), assessment of the business situation (+5) and expected demand (+5) improved. December’s confidence indicator was significantly higher than the long-term average in retail trade (+12), construction (+34) and services (+10). In manufacturing, it was lower by 3, and consumer confidence was lower by 9 points. Source: Statistical Office of the Republic of Slovenia

In the Q3, the real growth of Slovenian GDP decreased to 3.4% year on year (9.7% in the first and 8.3% in the second). Lower year on year growth was expected, but the drop compared to the previous quarter (seasonally and calendar adjusted) is surprising (-1.4%) given our estimate (+0.2%) and first estimate of GDP growth at EU-27 level (+0.2%). According to data available from Eurostat, the drop in Slovenia was the largest among the 14 countries for which data are available, while the median change was +0.25%. At first glance, the data was surprising also due to the fact that many business indicators were higher in the Q3 compared to the Q2 (industrial production, construction works, revenues from services, retail sales, etc.). During this period, household consumption increased by 1.2%, government consumption remained unchanged, and investments in fixed assets increased by 2.6% (of which the growth was particularly high in other buildings and facilities: +3.0 %). The growth of exports of goods and services strengthened from 2.6% in the previous quarter to 3.6%, and imports from 1.4 to 1.8%. The key and only component of GDP that contributed to the drop in GDP at the expenditure method was inventories, which decreased from EUR 874 to EUR 116 million. Inventories are a volatile item and fluctuated between EUR 50 and 400 m in the previous four quarters. This time, these inventories were associated with a drop in value added in trade (-11%), which can only be the result of a reduction in stocks in this sector, most likely in retail of crude oil derivatives, motor vehicles or distribution. According to the GDP production method, (real) value added in manufacturing increased by 1% q-o-q (+1.2% previously), in construction by 3.3%, in ICT activities by 2.3% and in other service activities by 1%. Value added dropped slightly only in professional, scientific and technical activities (-0.7%) among major sectors. Source: Statistical Office of the Republic of Slovenia

The rating agency Fitch followed the recent decision of the rating agency Moody's and confirmed Slovenia's sovereign debt rating A with a stable outlook. At the same time, it cited high development indicators, improvement of external financing conditions and a credible institutional environment as strong pillars. The public debt is high considering the small size of the economy, and the implementation of structural reforms is slow. They expressed relatively high optimism for growth in 2023, as real GDP is expected to strengthen by 1.3%, which is among the higher estimates. At the same time, the public finance deficit is expected to amount to 4.1% of GDP next year, which is more than expected this year (3.6%), but less than planned in the draft budget (5%). Until now, such an opinion has been the exception rather than the rule on the part of credit agencies. Source: Fitch Ratings

Current account showed a surplus of EUR 70 m in August, EUR 106 m less than in August of the previous year. Only services added to a surplus (EUR 377 m), while trade in goods (-EUR 151 m) and primary and secondary incomes achieved a deficit (-EUR 155 m). In the first eight months, the current account deficit amounted to EUR 213 m, while in the same period in 2021 there was a surplus of EUR 1.6 bn. The deterioration of the current account balance was most affected by trade in goods, with a EUR 2.6 billion lower balance (the deficit in trade in goods amounted to EUR 1.6 bn in 2022, while in the same period in 2021 there was a surplus in the amount of EUR 1 bn; exports y-o-y increased by 24%, and imports by 37%). Exports to EU member states accounted for 77% of total exports in 2022 and, compared to the same period of the previous year, increased by 25% or EUR 4.3 bn. Exports to Croatia and Italy increased the most (a total increase of 2.1 bn), followed by exports to Germany and Austria; all four countries together contributed three quarters of the increase in exports to the EU. Imports from EU member states accounted for three quarters of total imports and, compared to the same period in 2021, increased by 31.6% or EUR 5.3 bn. Imports increased the most from the same countries as on the export side, with all four countries together accounting for 62% of all the increase in imports from the EU. Imports from Austria and Italy stood out, with a total increase of 2 bn.

Cene življenjskih potrebščin v Sloveniji so bile v septembru za 0,9 % nižje kot mesec prej, kar je bilo pozitivno presenečenje, saj smo pričakovali sicer skromno, 0,2-odstotno rast cen. K mesečni deflaciji je največ (-1,1 o. t.) prispevala pocenitev cen električne energije (za 24,5 %), ki je bila posledica začetka implementacije regulacije cen. Navedenega nismo mogli predvideti, ker ni bilo jasno, kakšna je bila predhodna povprečna cena za gospodinjstva, ki je veljala še v mesecu avgustu. Pocenitve počitniških paketov (-14,4 %) so dodale 0,6 o. t. k deflaciji, proizvodov in storitev za osebna vozila (-2,6 %) pa 0,3 o. t. Po 0,1 o. t. vpliva so imele nižje cene toplotne energije (-7 %) in nastanitvenih storitev (-5,6 %).

The economic sentiment index (ESI) dropped by 4.5 p.p. m-o-m in September, which was a bigger drop than expected (our estimate: -0.7 p.p.) and thus fell below the long-term average. Decrease of indicator was influenced by all five components: the most by drop in manufacturing confidence (2.5 p.p. contribution to the decrease), followed by services (-1.3 p.p.). Retail trade sentiment had a slightly smaller impact (-0.3 p.p.), as well as consumer sentiment (-0.3 p.p.) and sentiment in construction (-0.2 p.p.). Excluding the pandemic period, the last time the indicator was this low was in April 14. Confidence in manufacturing fell by 7 p.p. m-o-m, in retail trade by 6 p.p., and in services by 5 p.p. In the construction, it fell by 3 p.p. and the consumer confidence decreased by 1 p.p. In services (15), retail trade (15) and construction (13), the indicator remained above the long-term average value, while the consumer confidence indicator (-40) was well below it and the lowest since June 12. In manufacturing (-8), the indicator slipped considerably below the long-term average in recent month.

In July, EU-27 recorded a EUR 42 bn deficit in goods trade with third countries (in June: EUR 34 bn and in July of the previous year EUR 16 bn surplus), which was mainly due to lower export and higher import growth, as a consequence of higher price growth of energy products (especially fossil fuels). Exports to markets outside the EU amounted to EUR 212 bn (EUR 225 bn in June), which was only 13% more than in July last year (June’ annual growth was 20%). Imports of goods, on the other hand, were still higher by half (increase from EUR 172 to EUR 254 bn). The value of trade within EU-27 amounted to EUR 342 bn, which was 22% more y-o-y. This data shows that the growth of imports remained high in nominal terms (mainly due to the rise in prices, with a more moderate increase in imported quantities), while the growth of exports began to slow down. Source: Eurostat

Global composite PMI fell below 50 in August (to 49.3; 50.8 in July), suggesting a slight contraction in the global economy, for the first time since June 2020. Volume of new orders contracted, world trade decreased, and the amount of excess capacity increased, which should at least alleviate price pressures. Five out of six sectors of the private economy registered declines (business services, consumer goods, consumer services, intermediate production and production of capital goods). Only the financial sector recorded slight growth. Declines were mainly present in developed economies (USA, Japan, Germany, Italy, United Kingdom), namely in both manufacturing and services. Economic activity picked up in India, Brazil and China. In world's 14 largest economies, employment increased, with the exceptions being China and Russia, where it declined. Services indicator fell to 49.2 in August, with services growing in China, the United Kingdom, India, Brazil, France, Italy, Spain, Australia, Kazakhstan, and Ireland. In USA, Japan, Germany and Russia, the volume of services provided decreased. Source: JP Morgan, S&P Global

Manufacturing PMI remained flat at 49.7, while the current output index fell from 46.5 to 46.3, which is expected to reflect a fall in industrial production in August, following a decline already in July. Price pressures in manufacturing are easing, which is not surprising given the drop in commodity prices. Among the larger economies in the euro zone, industrial production fell mainly in Germany and France, while it probably increased in other economies. Output fell mainly in the basic materials sectors and the automotive sector, where semiconductor shortages continue to limit production growth (but less sales as manufacturers focus on premium electric vehicles). Nevertheless, it is clear that the higher prices of electricity, natural gas and the shortage of semiconductors lead to greater imports of products from non-European countries, where the prices of energy products are lower, and the availability of semiconductors is better (Korean vehicle manufacturers).