Hypostat 2015

EU 28 Country Reports
Slovenia
By Andreja Cirman, University of Ljubljana
Macroeconomic Overview
Slovenia’s economy grew in real terms in 2014, thus reversing the last two years
of economic decline. In 2014, the Gross Domestic Product (GDP) grew by 2.6%,
after declining -1.0% in 2013 and -2.6% in 2012. Slovenia’s economy thereby
not only outperformed average euro area growth by 1.7 percentage points, but
also recorded the highest economic growth since the beginning of the economic
crisis in 2008.
The economic turnaround was the result of several factors. The growth in net
export boosted GDP and further improved the current account surplus (5.7% of
GDP at the end of 2014). The reversal of the fiscal consolidation policy, also due
to the support of EU funds, was a boon for growth. In fact, public infrastructural
investments compensated for a stubbornly lacklustre household consumption.
There was also registered more lending activity in 2014, which also had a positive
effect on private investment (IMAD, spring forecast of economic trends 2015).
The labour market saw an increase in wages and employment, with the latter
mostly observed in the private sector. These positive developments also led to
modest growth in private consumption. In line with the euro area average, inflation
remained low in Slovenia with a 2014 average of 0.4%, declining from the
1.9% average of 2013. Household disposable income remained almost the same
level in 2014 as in the previous two years (Financial Stability Report 2014, 2015).
Due to a relatively high share of precarious types of employment, household consumption
increased only slightly. Hence, Slovenian households remain cautious in
their investments and consumption, and retain instead a high gross savings rate.
The general government deficit is diminishing at a slow pace in Slovenia, and
stood at 4.9% of GDP in 2014. The general government debt on the other hand
increased to 80.9% of GDP. According to the Central Bank of Slovenia annual
report, this was mainly due to the issuing of Bank Asset Management bonds,
the pre-financing of principal maturing in 2015 and the general financing of the
government deficit.
A few factors that might have a negative impact on Slovenia’s 2015 economic
performance are worth mentioning: a stall in the restructuring of the corporate
sector which could hamper investment, a possible decline in foreign demand
impacting the export and changes in the access to EU funds.
Housing and Mortgage Markets
In 2014, the housing market was revived after several years of slow or no growth.
Real estate transactions went up by almost a third, which was reflected in an
increase in new mortgages by 6.1% compared to 2013. This increase in market
liquidity constituted the first increase in housing loans in 4 years. The development
in housing loans is also linked to the prices of residential real estate,
which have dropped in the last 3 years, and continued to do so in 2014, posting
a 6.9% decline. In 2014 the prices of all kinds of dwellings decreased, while the
highest drop in the value was recorded in existing flats, namely by 5.7%. Their
prices decreased in Ljubljana (by 3.1%) and also outside Ljubljana (by 7.2%).
Existing family houses lost 3.2% of their value, and newly built ones 4.6% of
their value. The smallest, only 2.8%, was the decrease in the value of newly built
flats (SORS, 2015). According to the Central Bank of Slovenia’s annual financial
stability report, the housing market development in 2014 indicated a gradual
stabilisation of house prices.
On the primary housing market, contraction of supply continued, with the number
of permits issued for new buildings declining 7.4% in 2014, reaching an all time
low with less than 3200 housing units completed – less than one third of the
peak volume in 2008. Additionally, the number of housing starts remained low and
building permits continued to decrease. Banks have previously been reluctant to
lend to the construction sector, and since the 2008 economic crisis the majority
of large construction companies have gone bankrupt. Construction activity continues
to face low profits and high risks, as well as severe difficulties in access
to finance. In 2014 the banks have granted or refinanced EUR 580 million loans
to the construction sector, which is less than a fifth compared to loans granted in
peak year of 2009. Conversely, the flip-side of a bad numbers in terms of housing
investments is that they can help stabilise real estate prices by curbing supply.
However, prices are at present expected to remain on the same path as foreclosed
residential stock from debtors’ outstanding loan liabilities to banks, which were
transferred to the Slovenian Bank Assets Management Company, are expected
to gradually be put back onto the market.
Interest rates on housing loans decreased by 0.9 percentage points to 2.4% in
March 2015. The average LTV ratio on newly approved housing loans in 2014
remained unchanged at 67% (taking into account only those loans for which a
bank requested collateral). For the outstanding loans the LTV remained relatively
low at 53%. The average LTV for newly approved housing loans was 27% (Financial
Stability Report 2014, 2015).
In contrast to the Slovenian corporate sector, the indebtedness of Slovenian households
is relatively low. At around 33% of the GDP and 54% of annual disposable
income, the financial debt of Slovenian households is much below the euro area
average of around 107%. With only 4.3% of classified claims in 90 days arrears,
Slovenian household loans remain relatively low-risk.
Mortgage Funding
Although legislation permits banks to issue mortgage backed securities, no
securitisation of residential mortgages has taken place yet. Before the economic
crisis in 2008, Slovenia banks acquired funding on international financial markets
to fuel high lending activity. However, the situation afterwards changed with levels
now much lower. In the period from the end of 2008 until March 2015, banks
have made net repayments of EUR 11.7 billion (about a third of Slovenian GDP),
and are strongly reducing their dependence on financial markets from 36% of
total assets in 2008 to 15.5% by the end of March 2015.
The increasing constraints on funding on the financial markets also led to an
increase in the importance of funding via deposits on the domestic markets,
which now constitute the most important and stable source of funding in Slovenia.
According to the 2015 Financial Stability Report, deposits accounted for 64% of
bank funding, up 20 percentage points related to the end of 2008. However, the
low interest rate environment has increased the amount of sight deposits in the
Slovenia banks.
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