.^'IMAD O fü Q) £ u £ o o Ü) o u 0) X X • d cB fN CU _Q E cu (D LO Slovenian Economic Mirror ISSN 1318-3826 No. 9 / Vol. XX / 2014 Publisher: IMAD, Ljubljana, Gregorčičeva 27 Responsible Person: Boštjan Vasle, MSc, Director Editor in Chief: Ana T. Selan, MSc Authors of Current Economic Trends (listed alphabetically): Jure Brložnik, Gonzalo Caprirolo, MSc, Lejla Fajič, Janez Dodič, Marjan Hafner, MSc, Matevž Hribernik; Slavica Jurančič, Mojca Koprivnikar Šušteršič, Tanja Kosi Antolič, PhD, Janez Kušar, Jože Markič, PhD, Helena Mervic, Tina Nenadič, MSc, Mitja Perko, MSc, Jure Povšnar, Ana T. Selan, MSc, Dragica Šuc, MSc Authors of Selected Topics: Matevž Hribernik (WEF Global Competitiveness Report 2014-2015); Valerija Korošec, PhD (Indicators of income inequality and poverty risk). Editorial Board: Marijana Bednaš, MSc, Lejla Fajič , Alenka Kajzer, PhD, Rotija Kmet Zupančič, MSc, Janez Kušar, Boštjan Vasle, MSc Translator: Marija Kavčič Data Preparation and Graphs: Bibijana Cirman Naglič, Marjeta Žigman Concept and Design: Katja Korinšek, Pristop DTP: Bibijana Cirman Naglič Print: SURS Circulation: 80 copies © The contents of this publication may be reproduced in whole or in part provided that the source is acknowledged. Contents In the spotlight................................................................................................................................................................3 Current economic trends..............................................................................................................................................5 International environment...............................................................................................................................................7 Economic developments in Slovenia.............................................................................................................................8 Labour market..................................................................................................................................................................14 Prices..................................................................................................................................................................................16 Balance of payments.......................................................................................................................................................18 Financial markets.............................................................................................................................................................19 Public finance....................................................................................................................................................................22 Boxes Box 1: Merchandise market shares in the first half of 2014.....................................................................................10 Box 2: Real estate market - Q2 2014.................................................................................................................................11 Box 3: Main aggregates of the general government - 1st half of 2014 and revision of annual data according to ESA 2010.......................................................................................................................................................................23 Box 4: Drawing of cohesion funds in the 2007-2013 programming period, with emphasis on 2014...........................24 Selected topics WEF Global Competitiveness Report 2014-2015.......................................................................................................29 Indicators of income inequality and poverty risk......................................................................................................30 Statistical appendix.....................................................................................................................................................33 The Economic Mirror is prepared based on statistical data available by 3 October 2014. On January 2008, the new classification of activities of business entities NACE Rev.2, which replaced NACE Rev. 1.1, came into force in all EU Member States. In the Republic of Slovenia, the national version of the standard classification, SKD 2008, which includes the entire European classification of activities but also adds some national subclasses, came into force on the mentioned date. In the Slovenian Economic Mirror, all analyses are based on the SKD 2008, except when the previous SKD 2002 classification is explicitly referred to. More general information about the introduction of the new classification is available on the SURS website http://www.stat.si/eng/ skd nace 2008.asp. All seasonally adjusted data in the Economic Mirror are calculations by IMAD. In the spotlight Indicators of economic activity in the euro area have improved somewhat at the beginning of the second half of the year; confidence indicators show modest prospects for growth in activity in the coming months. Following the unfavourable developments in the second quarter, manufacturing production and turnover in retail trade in the euro area rose again in July, while the value of construction put in place remained unchanged from previous months. The prospects for economic growth in the coming months are modest, given that confidence indicators mainly deteriorate, although they still indicate growth in the euro area. Lower activity in the first half of the year than expected in the spring and uncertain prospects are also reflected in the latest (lower) growth forecasts of international institutions for this year. The values of most short-term indicators of economic activity in Slovenia have been steadily rising since mid-2013. Real merchandise exports continued to grow, which is related to improvement in the international environment and higher export competitiveness. The latter is reflected in a further increase in Slovenia's global market share, which is nevertheless still substantially smaller than before the beginning of the crisis. Production volume in manufacturing was also up again, boosted by further growth in more technology-intensive and medium-low-technology industries. There was also an increase in turnover in market services, while turnover in retail trade has stagnated since last spring, with small monthly fluctuations. Construction activity declined somewhat but remains much higher than a year earlier, owing chiefly to higher activity in the construction of municipal infrastructure in the last year, which is attributable to EU funds absorption. Labour market conditions have continued to improve in recent months; average gross earnings per employee are still gradually rising. In July, employment rose again (0.2%, seasonally adjusted), and was up year-on-year in the first seven months particularly in certain activities of market services (in particular employment activities leasing labour) and public services. Registered unemployment has been falling since March (seasonally adjusted), mostly owing to increased hiring, but also due to fewer people losing jobs. The registered unemployment rate declined further in August but remained high (13.0%, seasonally adjusted). Average gross earnings per employee rose again in July, arising only from growth in the private sector, which has been gradually rising in the last and a half years. Gross earnings in the public sector remained unchanged in July after increasing in the first half of the year. Prices were down year-on-year again in September (-0.3%) amid subdued demand and in the absence of international price shocks. Deflation was primarily impacted by lower prices of semi-durable goods (clothing and footwear) and energy. Core inflation also remained low amid weak domestic demand. In the euro area, year-on-year inflation was 0.3% in September, according to Eurostat's flash estimate, the reasons for low inflation being the same as in the domestic environment. After last year's beginning of the banking system restructuring, the situation in the banking system has been gradually stabilising, but the volume of (particularly corporate) loans continues to decline. In the first eight months of 2014, debt repayments of domestic non-banking sectors totalled EUR 1.1 bn, and were 5% lower than in the same period last year. The smaller year-on-year decline was largely the result of slower household deleveraging, as corporate and NFI deleveraging was higher than a year before. This year, enterprises and NFIs repaid almost EUR 130 m net in foreign loans. Although they narrowed in July, the gaps between domestic and foreign interest rates remain among the largest in the euro area. Household deposits continue to rise. Government deposits are also increasing this year, despite the fall in August. The deterioration in the quality of banks' claims has eased in recent months, but the share of arrears of more than 90 days remains relatively high (at 14.7; at 17.1% a year earlier). According to the consolidated general government budgetary accounts on a cash basis, the deficit in the first seven months (EUR 947.1 m) was lower than in the same period last year. This was attributable to high year-on-year growth in revenue (6.2%), which was mainly underpinned by the increase in VAT rates, higher revenue from corporate income tax after last year's significant negative final tax assessment, one-off non-tax revenues and economic growth. Within expenditure, which was up 1.4% year-on-year in the first seven months, the largest increase was in expenditure on investment and interest payments, and the largest decline in expenditure on goods and services and reserves. Data for the first half of 2014 and the new official estimate for this year show that the general government deficit on an accrual basis (-3.6% without one-off expenditure) will be somewhat lower than last year (-3.9%) but is set to exceed the target set in the Stability Programme 2014. According to our estimate, this will be due to lower realisation of some revenues in spite of a greater improvement in the economic situation than expected in the spring, and to higher-than-planned expenditure. Slovenia slipped significantly again on the WEF global competitiveness scale. It remains one of the countries whose rankings have deteriorated substantially since the beginning of the crisis. Among the EU countries, Slovenia has fallen from the EU average to the bottom fifth of the Member States in this period. In the last year alone, Slovenia's ranking has declined by eight places to 70th, the deterioration being recorded in all three competitiveness categories. Slovenian managers remain dissatisfied primarily with the current economic and political situation and the business environment. The main barriers to doing business are similar to previous years, i.e. particularly limited access to finance, inefficient government bureaucracy and high tax rates. The WEF survey results have also been confirmed by Slovenia's low rankings in other international competitiveness surveys (such as IMD, WB Governance Indicators). ■o £ Ol E o £ 0 u 01 £ 01 3 U International environment Short-term indicators of economic activity in the euro area improved somewhat at the beginning of the second half of the year; confidence indicators indicate modest prospects for economic growth in the coming months. After the unfavourable developments in the second quarter, manufacturing production and turnover in retail trade in the euro area rose again in July (1.4% and 0.9%, respectively), while the value of construction put in place remained similar to previous months. The prospects for economic growth in the coming months are modest, as confidence indicators mainly deteriorate. The values of the manufacturing PMI1 declined further in September, to the lowest level in the last 14 months, but continue to indicate growth in the euro area. Lower activity in the first half of the year than expected in the spring and uncertain prospects are also reflected in the latest (lower) growth forecasts of international institutions for this year. In September, the ECB lowered its forecast for the euro area for this year by 0.2 percentage points to 0.9%, the main reasons being, in addition to the weak economic activity in the second quarter, the deteriorated short-term outlook for investment and exports. Consensus forecasts were also lower in September for the majority of main trading partners. The OECD's interim forecasts for the euro area were also revised downwards relative to the spring forecast. Figure 1: Manufacturing PMI —•—EMU -Germany -----Italy -----France 65 60 - Austria 45 35 30 Source: Markit Economics. Note: PMI readings above 50 signal an increase in production, while readings below 50 indicate a decrease. In view of the continuing low inflation and weaker-than-expected economic recovery, the ECB lowered its key interest rates in September and announced additional, unconventional, measures. The interest rates on the main refinancing operations, the marginal facility and the deposit facility were reduced by 10 basis points to 0.05%, -0.20% and 0.30%, respectively. Moreover, in September Table 1: Money market interest rates and the exchange rates of national currencies against the EUR Interest rates average, in % change, in b. p. 2013 IX 13 VIII 14 IX 14 IX 14/VIII 14 IX 14/IX 13 3-month EURIBOR rate 0.220 0.223 0.192 0.097 -9.5 -12.6 3-month USD LIBOR rate 0.268 0.254 0.235 0.234 -0.1 -2.0 3-month CHF LIBOR rate 0.021 0.020 0.021 0.009 -1.2 -1.1 Exchange rates average change, in % 2013 IX 13 VIII 14 IX 14 IX 14/VIII 14 IX 14/IX 13 EUR/USD 1.328 1.335 1.332 1.290 -3.1 -3.3 EUR/CHF 1.231 1.234 1.212 1.208 -0.3 -2.1 EUR/GBP 0.849 0.842 0.797 0.791 -0.8 -6.0 EUR/JPY 129.66 132.41 137.11 138.39 0.9 4.5 Source: Euribor, ECB, calculations by IMAD. Table 2: Oil and non-energy commodity prices Oil average change, in % 2013 IX 13 VIII 14 IX 14 IX 14/VIII 14 IX 14/IX 13 Brent USD 108.56 111.60 101.61 97.21 -4.3 -12.9 Brent EUR 81.66 83.01 77.57 76.43 -1.5 -7.9 Commodities change, in % 2013/2012 IX 14/VIII 14 IX 14/IX 13 Non-energy commoditites -1.2 -1.8 -3 Food 1.1 -3.5 -5.1 Agricultural raw materials 1.4 -1.0 2.8 Metals -4.2 -0.4 -7.0 Source: EIA, ECB, IMF, calculations by IMAD. 1 Purchasing Managers Index. 55 50 40 Figure 2: Consensus forecasts for 2014 —•—EMU -Germany - - France -----Austria - Italy 2.5 —;-;-;-;-;-r- —;-;-;-;-;-;-;-;-r" i^l.0 -0.5 Source: Consensus Forecasts. Figure 4: Prices of Brent crude oil and USD/EUR exchange rate -Price in EUR(left axis) -Price in USD (left axis) -USD to EUR exchange rate (right axis) 1^100 1.2 a fO-:^ fO-:^ fO-:^ fO S(^urce: EC^,EIA; calc^ulations by IMAD^ Figure 3: Yields to maturity of ten-year government bonds ■ Slovenia -Italy - Portugal Ireland - Spain • Germany Source: Bloomberg. Figure 5: Non-energy commodity prices in dollars - Non-energy commodities -----Agricultural raw materials -----Metals -----Food 260 240 220 200 180 160 140 120 100 80 60 - Industrijske surovine the first auction under the targeted longer-term refinancing operations (TLTRO) was carried out. Banks were allotted EUR 82.6 bn (of the total of EUR 400 bn to be available in two auctions2) in loans3 with a four-year maturity and at a 0.15% interest rate to increase lending to the non-financial private sector. The relatively low interest of banks is not surprising, given the conditions attached to this measure4 and uncertainty before the completion of the review of the euro area banking system's quality. The ECB also announced the possibility of further measures. 2 The second auction is planned for December. 3 Slovenian banks took out a relatively small amount. 4 Banks that will not use these funds for lending to business will be obliged to repay them after two years. Economic developments in Slovenia The values of most short-term indicators of economic activity in Slovenia have been steadily rising since mid-2013. Real merchandise exports continue to grow, which is attributable to the improvement in the international environment and higher export competitiveness. The latter is reflected in a further increase in Slovenia's global market share, which is nevertheless still substantially smaller than before the beginning of the crisis. Production volume in manufacturing has also increased again, boosted by further growth in more technology-intensive and medium-low-technology industries, as has turnover in market services, while turnover in retail trade has been very low since last spring, with small monthly fluctuations. ■ 1.5 Q 13 0.5 0 1.8 1.6 1.4 80 60 1.0 40 20 Construction activity has eased somewhat but remains much higher than a year earlier, owing chiefly to higher activity in the construction of municipal infrastructure in the last year related to EU funds absorption. Economic sentiment has remained at a similar, albeit much higher, level than last year. Figure 6: Short-term indicators of economic activity in Slovenia - Merchandise exports - Industrial production in manuf. ■ Value of construction put in place - Turnover in retail trade c^^ c^^ Source: SURS; calculations by IMAD. Table 3: Selected monthly indicators of economic activity in Slovenia in % 2013 VII 14/ VI 14 VII 14/ VII 13 I-VII 14/ I-VII 13 Exports1 2.5 4.7 2.8 4.2 -goods 1.8 4.3 5.3 5.1 -services 5.6 6.5 -6.5 0.2 Imports1 -1.5 6.8 5.9 4.7 -goods -1.9 4.8 5.3 3.4 -services 1.4 18.3 9.2 14.3 Industrial production -0.9 1.92 9.03 3.73 -manufacturing -1.5 1.62 8.23 3.13 Construction -value of construction put in place -2.6 -2.12 24.83 35.43 Real turnover in retail trade -3.7 1.92 2.83 -0.33 Nominal turnover in market services (without trade) -0.3 1.82 5.53 3.13 Sources: BS, Eurostat, SURS; calculations by IMAD. Notes: 'balance of payments statistics, 2seasonally adjusted, 3working-day adjusted data. Merchandise exports recorded further growth in real terms in July, while imports declined slightly after increasing in previous months, seasonally adjusted.5 Export growth, which is, in addition to the improvement in the international environment, attributable to higher 5 The estimate of real merchandise exports is based on nominal exports according to the external trade statistics and industrial producer prices on the foreign market, while real imports have been estimated on the basis on nominal imports according to the external trade statistics and the index of import prices. export competitiveness, continues to rely on growth in exports to the EU, which began in the second quarter of last year. Merchandise exports to outside the EU have been declining in recent months after the increase at the beginning of the year, but are approximately one tenth higher than in 2008. Real merchandise imports, having grown since March, declined slightly in July. According to original data, real merchandise exports were up 5.6% year-on-year in the first seven months while imports were up 2.2%. Figure 7: Merchandise exports and imports - in real terms Imports 95 90 85 80 75 70 Source: SURS; calcualtions by IMAD. Figure 8: Exports and imports of services - nominal Imports of services 400 !E 350 =^300 E 250 o ^ c^ c^ c^ c^ c^ c^ Source: BS; calculations by IMAD. Nominal exports and imports of services declined further in July (seasonally adjusted).6 The fall in exports was mainly the result of significantly lower exports of travel, 6 According to the balance of payments statistics. 105 o 100 500 450 200 Box 1: Merchandise market shares in the first half of 2014 Figure 9: Change in Slovenia's market shares on the global market and in the EU 1 World lEU 28 10 The global market share of Slovenia's merchandise exports continued to increase in the first half of 2014. After falling by more than a fifth in 2008-2012, Slovenia's share on the global merchandise market rose in the first half of 2014, for the second consecutive year. This indicates that the growth of exports in 2013 and 2014 has been, in addition to higher import demand,1 also due to the improvement in export competitiveness of the economy. In the first half of the year, Slovenia increased its market shares in the majority of its main trading partners in the EU: Germany, Italy, Austria, Croatia, Hungary and Poland. Slovenia's market shares also rose on most other, relatively less important, EU markets.2 Outside the EU, Slovenia's market shares rose in Russia and the US, while declining in Serbia, Bosnia and Herzegovina and Macedonia. On the EU market, the market shares of primary products and most manufactured goods rose again in the first half of 2014. Among the latter, the strongest growth was recorded for manufactures classified by material (4.3%), particularly metals, paper, paperboard and textile yarn, fabrics and related products. The growth of market shares of chemical products, machinery and transport equipment and miscellaneous Soufce: UN, SURS, Eurostat;calculations by imad. manufactured articles was approximately half lower. It was boosted by a number of chemical products that are less important for Slovenian exports,3 electrical machinery and appliances, machinery specialised for particular industries and miscellaneous manufactured articles,4 amid a concurrent decline in the market shares of Slovenia's main export products, medical and pharmaceutical products, road vehicles and furniture.5 The market share of primary products (17.9%) rose much more than the share of manufactured goods (2.5%), mainly under the impact of oil and oil products and electricity.6 -10 -12 2006 2007 2008 2009 2010 2011 2012 2013 Q1-Q2 2014 Figure 10: Change in market shares in main trading partners, first half of 2014 35 30 25 20 10 5 -10 -15 -20 .....1....... ........I- ......4.......4........1..... I.......f....... ■ 1 .......i-..... .....i J.......1.......1....... '................ 1.......r....... : i Illlwif III i-.......t.......t :........{■....... .......{■..... 1 .....r .......\.......1.......j -nillRff 1 .....4- -4.......4.......4....... ........I"" .......4.......4........ .......{■.......{■.......{■....... .......{■•••• O 5 Source: SURS, Eurostat, WIIW, WTO, U.S. Census Bureau; calculations by IMAD. Figure 11: Change in market shares in the EU by main SITC sections,7 first half of 2014 18 15 12 9 6 3 J^e 0 J= -3 -6 o -9 -12 -15 ■ Exports Slovenia ■ Imports EU »Market share Source: SURS, Eurostat; calculations by IMAD. 1 Since the last quarter, especially from the EU. 2 In Spain, the Netherlands, Belgium, Greece, Ireland, Luxembourg, Sweden, Latvia, Lithuania, Malta, Romania and Bulgaria. 3 Organic and inorganic chemicals, dyeing and tanning materials, essential oils, perfumes and toiletries, plastics and plastic products. 4 Including clothing and footwear. 5 Their share in total merchandise exports in 2013 was 23%. 6 Growth was a consequence of increased trading in these commodities in recent years (re-exports). 7 With a 2% or greater share in total merchandise exports in the EU in 2013. which could also be explained by the bad weather during the tourist season. Exports of transport and other services were also down,7 while exports of other business services, which tend to fluctuate significantly at the monthly level, rose this time. Imports of services, having increased since mid-2013, have been falling in recent months. Similar to exports, imports of travel services have been declining in particular. July also saw a decline in imports of other groups of services, especially transport services. According to original data, nominal exports of services remained at a similar level year-on-year (0.2%), while imports were up 13.4%. Production volume in manufacturing continued to increase in July. More technology-intensive and medium-low-technology industries recorded further growth, while low-technology production remained unchanged from the previous month. In most industries, production volume was up year-on-year in the first seven months. The strongest year-on-year growth was recorded by industries that are oriented mainly to foreign markets. The production of ICT and electrical equipment and leather products was up more than a tenth. Almost 10% increases were recorded in the manufacture of rubber and plastic products and in the wood-processing industry (also owing to ice damage repair). The outputs of furniture and textile industries remained somewhat lower in year-on-year terms, so that these industries do not contribute to the otherwise modest recovery in low-technology industries that are, on average, predominantly oriented towards the domestic market. Box 2: Real estate market - Q2 2014 The number of transactions in existing flats rose in the second quarter, while the number of transactions in new flats remained very low. According to SURS data, in the second quarter, the number of all dwelling transactions (in newly built and existing flats and family houses) increased substantially again (original data), after significant growth at the end of last year, and was a quarter higher than a year earlier. The majority of transactions (almost 70%) were in existing flats, whose number had increased for the third consecutive quarter and was 30.2% higher than a year earlier. After three quarters of decline, the number of transactions in newly built dwellings also rose marginally but was still a quarter lower than in the same period last year and more than half lower than in 2008. Dwelling prices declined further in the second quarter. The decline seen in the previous two years continued into the first half of this year, so that in the second quarter, dwelling prices were a tenth lower than a year earlier and almost a quarter below the 2008 peak. The prices of existing dwellings declined for the fourth consecutive quarter and the prices of new dwellings also fell considerably after two quarters of growth. Existing flats in Ljubljana lost the most value relative to 2008 (29%), given that their prices dropped for the eight quarter in a row. After declining in the first quarter, the prices of existing flats in the rest of Slovenia remained unchanged, 15.6% lower than in 2008. Figure 12: Transactions in existing and newly built flats and houses -Transactions in existing flats ■ Transactions in newly-built flats 160 ----Transactions in existing houses -Transactions in newly built houses "o 60 40 a a a a a Source: SURS; calculations by IMAD. Figure 13: Prices of existing and newly built flats and houses - Prices of existing flats ■ Prices of newly-built flats 105 95 90 85 75 70 ----Prices of existing houses - Prices of newly built houses a a a a a Source: SURS; calculations by IMAD. 7 When adjusting data for seasonal effects, we placed communication, construction, financial, computer and information activities, personal service activities, arts, entertainment and recreation activities, government services, insurances and licences, patents and copyrights into the group of other services. Together, they account for almost a fifth of services exports and nearly a third of services imports. &100 s 140 o 120 100 " 80 80 Figure 14: Production volume in the manufacturing sector 110 100 95 !E 90 Ji 85 O Ii 80 "D 1= 75 70 Low-technology industries - Medium-low-technology industries - Medium-high-and high-technology industries - Manufacturing, total Source: SURS; calculations by IMAD. The level of construction activity declined slightly in July but remained substantially higher than last year. The value of construction put in place dropped by 2.1% in July (seasonally adjusted). Construction activity, having picked up considerably in the second half of last and the beginning of this year, declined somewhat in the past four months. The strengthening and the relatively high level of activity are linked to civil-engineering works (municipal infrastructure in particular), i.e. the completion of projects co-financed by the EU at the end of the financial perspective. The stock of contracts in the construction sector declined substantially in July. After last year's significant increase of 35.5%, it fell by 7.4% in the first half of this year and by a further 8.2% in July. This year, the stock of contracts Figure 15: Value of construction put in place 80 60 Total Residential buildings Non-residential buildings Civil-engineering structures declined in all three construction segments, the least in civil-engineering works, where it was still up year-on-year. The stock of contracts in the construction of buildings (both residential and non-residential) is lower than a year before. Turnover in the sale of motor vehicles increases this year, while turnover in retail and wholesale stagnates, seasonally adjusted. Turnover in retail trade otherwise rose slightly in July, but it has been hovering around similar, very low, levels since last spring. It declined further in stores selling food, beverages and tobacco products, falling to the lowest level since 2008, while the growth of turnover in stores selling non-food products continued from the first half of the year, again on account of higher sales of computer and telecommunication devices, books, sports equipment and toys. Turnover in the sale of automotive fuels also increased more strongly in July and was almost a tenth higher than a year earlier. Turnover also rose in wholesale trade, but in July it was similar to that at the end of last year after the fluctuations in the first and second quarters. The sale and repair of motor vehicles recorded a continuation of last year's growth. Figure 16: Turnover in trade sectors -Retail trade, real ----- of which automotive fuels, real -----Sale, repair of motor vehicles, real - Wholesale trade, nom. . 105 cocoo^o^oo^^rNrNmm^^ c^^ c^^ c^^ c^^ c^^ E? 85 ^^ 80 (U 75 70 Source: SURS; calculations by IMAD. With the increase in July (seasonally adjusted), nominal turnover in market services (excluding trade)8 continued its upward trend and was highest since the beginning of the crisis. It rose in all main market services, being also higher year-on-year.9 Higher turnover than before the crisis (by a tenth) is recorded only in transport services, despite slower growth in the last few months. Turnover increased most in professional and technical services (amid substantial fluctuations), but remained considerably lower than before the crisis (by a fifth in architectural and 8 Activities from H to N (SCA 2008) subject to the Council Regulation (EC) No. 1165/98 concerning short-term statistics. 9 This is in part also due to the base effect, as in 2013, many market services recorded much stronger activity (as measured by turnover) in June (i.e. before the higher VAT rates entered into force) than in July. 105 65 100 o 95 90 65 120 100 40 20 engineering services and a third in advertising). After rising for one and a half years, turnover in accommodation and food service activities stagnated in July amid a decline in overnight stays. Turnover in employment activities, significantly higher than before the crisis (30%), did not contribute to the otherwise strong growth of turnover in administrative and support service activities in July. The growth of turnover in information and communication services is weak this year. of last year). Transfers to individuals and households in the first seven months were 0.8% lower10 in real terms year-on-year (-2.0 % in the same period of last year). Household deposits in banks have been rising noticeably in the last four months, amounting to EUR 15.2 bn in August, up 3.4% year-on-year. The volume of consumer and other loans was down at the end of August relative to the same month of 2013 (-8.5%), while the volume of housing loans was up slightly (1.5%). Figure 17: Nominal turnover in market services (other than trade) -Total -Transportation and storage (H) -----Communication activ. (J) -----Professional-technical activ. (M) -Administrative and support service activities (N) ------Accommodation and food service activities (I) JE 105 100 S? 95 II 90 (u ■D 85 80 ^ Source: SURS; calculations by IMAD. Among household income indicators, the net wage bill has been growing steadily in the last year (seasonally adjusted). It rose slightly again in August, reaching the highest level in the last two years. In the first eight months, it was up 0.7% in real terms year-on-year (-4.2% in the same period Figure 18: Household consumption indicators -----No. of first car registrations by natural persons (left axis) -Turnover in stores selling durables (left axis) — Net wage bill (right axis) 130 !? 120 is 110 I00 E ii 90 c o ^F 80 50 40 .;... .......--i......... .........4.......... 1 N .........i.........i.........ii i .........i.........i ^rj...........».................... K /V 106 (u t? 104 (U :> 102 C o 100 E -C 98 cz o E 96 E? 94 92 T3 90 ro 88 86 (D Source: SURS, Ministry of Infrastructure and Spatial Planning; calculations by IMAD. Among household consumption indicators, the number of first car registrations by natural persons has increased slightly and consumer confidence continues to improve. Turnover in retail trade excluding automotive fuels has stagnated since the end of last year, seasonally adjusted. After increasing significantly in June, turnover in durable goods11 declined slightly. While increasing further in the sale of furniture, it fell again in the sale of household appliances but remained significantly higher than at the beginning of the year. In August, the number of first car registrations by natural persons reached the highest level in more than a year (seasonally adjusted). Consumer confidence also rose further, reaching to the highest level since the beginning of the crisis in September. Economic sentiment has remained at similar, albeit much higher, levels than last year since May. Continuing to improve, consumer confidence reached its highest level in six years in September. After rising in the first half of the year, confidence in the construction and manufacturing sectors declined slightly in the past two months, while confidence in trade and service activities hovered around the levels recorded at the end of the first half of the year. Figure 19: Business trends Manufacturing Service activ. Consumers 20 0 -10 -20 -30 -40 -50 -60 Source: SURS; calculations by IMAD. 10 According to the consolidated public finance balance of the Ministry of Finance, excluding scholarships. Since May 2013 expenditure on scholarships has been covered from direct government funds or reserves. 11 Turnover in the sale of furniture, construction material, household appliances, audio/video recordings in specialised stores. 75 40 30 10 70 -70 60 Labour market The labour market situation has continued to improve in recent months. The number of employed persons12 started to rise slowly in the second quarter of 2013, but in February its growth strengthened. In July the number increased further, by 0.2 %, seasonally adjusted. Year-on-year, it was up 1%. In the first seven months it was higher year-on-year particularly in individual market service activities,13 especially employment activities (by 40.3%), and in public services (education, health care). It was also up in arts, entertainment and recreation and other activities, owing mainly to a larger number of self-employed persons. Registered unemployment has been falling since March (seasonally adjusted) mainly due to increased hiring. In August, it dropped further, 114,784 persons being registered as unemployed at the end of the month, 1.6% fewer than in the previous August. In the first eight months of the year, fewer persons registered as unemployed than in the same period last year, chiefly Table 4: Indicators of labour market trends in % 2013 VII 14/ VI 14 VII 14/ VII 13 I-VII 14/ I-VII 13 Labour force -0.7 -0,2 0,7 0,4 Persons in formal employment -2.0 0,2^ 0,9 0,1 Employed in enterprises and organisations and by those self-employed -2.6 -0,1 0,8 0,2 Registered unemployed 8.8 -0,7^ -0,8 2,2 Average nominal gross wage -0.2 0,2^ 1,7 1,1 - private sector 0.6 0,5^ 2,3 1,7 - public sector -1.3 0,0^ 1,1 0,4 -of which general government -2.5 -0,1' 1,2 0,0 2013 VII 13 VI 14 VII 14 Rate of registered unemployment (in %), seasonally adjusted 13.1 13,2 13,1 13,0 Average nominal gross wage (in EUR) 1,523.18 1.510,02 1.521,38 1.535,66 Private sector (in EUR) 1,404.40 1.390,09 1.396,00 1.421,83 Public sector (in EUR) 1,740.78 1.731,66 1.755,94 1.750,06 -of which general government (in EUR) 1,716.48 1.694,69 1.741,45 1.714,98 Figure 20: Employed according to SRE and registered unemployed -Employed according to SRE (left axis) — Registered unemployed (right axis) 860 840 ro 820 c o 800 CD 780 cSl 760 m C) 740 720 700 E 680 CU O