www.oecd.org/eco/surveys/economic-survey-slovenia.htm

2015 OECD ECONOMIC SURVEY OF SLOVENIA

Return to stronger growthLjubljana, Monday 4th May 2015

OECD

OECD Economics

2

Well-being is high

1. Each well-being dimension is measured by one to four indicators from the OECD Better Life Index set. Normalised indicators are averaged with equal weights. Indicators are normalised to range between 10 (best) and 0 (worst) according to the following formula: (indicator value - minimum value) / (maximum value - minimum value) x 10.Source: OECD (2014), OECD Better Life Index, www.oecdbetterlifeindex.org.

Income and wealth

Jobs and earnings

Housing

Work and life balance

Health status

Education and skillsSocial connections

Civic engagement and governance

Environmental quality

Personal security

Subjective well-being

0

2

4

6

8

10Slovenia OECD

Well-being outcomes: Better Life IndexFrom 0 (worse) to 10 (best), 2014¹

3

Slovenia grew rapidly until 2008, but the crisis hit hard

Source: OECD Economic outlook 96 database.

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

90

110

130

150

170

190

210

230

250

GDP in volume

Slovenia Czech Republic Euro periphery Poland

Hungary

Index, 1991 = 100

4

Recovery has been slow - bank credit to the private sector is still falling

Source: ECB Statistical Data Warehouse.

2010 2011 2012 2013 2014 2015-20

-15

-10

-5

0

5

10

15

Credit growth

Slovenia - Enterprises Slovenia - Households

EA - Enterprises EA - Households

Y-o-y % change

5

Unemployment is becoming entrenched and has increased among the young

1. Unemployed of one year or more as a percentage of total unemployment, 2007 and 2013. Countries are shown in ascending order of the incidence of long-term unemployment in 2013. Data are not seasonally adjusted but smoothed using three-quarter moving averages. OECD is the weighted average of 33 OECD countries excluding Chile.2. Data are seasonally adjusted and refer to the unemployment rate of individuals aged 15-24.Source: OECD calculations based on quarterly national labour force surveys, for Panel A; and OECD Short-Term Labour Market Statistics database, for Panel B.

KOR

NO

RC

ANSW

EFI

NAU

TD

NK

LUX

G7

NLD

POL

JPN

DEU BE

LES

PSV

NIT

ASV

K0

10

20

30

40

50

60

70

80

A. Long term unemployment, 2013¹%

2008 2009 2010 2011 2012 2013 20140

5

10

15

20

25

30

B. Youth unemployment rate²%

6

2006 2007 2008 2009 2010 2011 2012 2013 20140

10

20

30

40

50

60

70

80

90

100

Gross public debt, Maastricht criterion% of GDP

Public debt has risen steeply

Source: OECD Economic outlook 96 database.

7

Numerous rigidities hinder adjustment

Note: the numerical PMR indicators represent the stringency of regulatory policy in specific areas on a scale of 0 to 6 with a higher number indicating a policy stance that is deemed less conducive to competition. In each case, it characterises the stance of regulation as it stood in early 2013 and does not reflect the reforms implemented since then.Source: OECD PMR indicators database.

Net

herl.

..

Uni

ted

...

Aust

ria

Den

mar

k

New

Ze.

..

Italy

Aust

ralia

Esto

nia

Finl

and

Ger

man

y

Portu

gal

Hun

gary

Slov

ak ..

.

Belg

ium

Cze

ch R

...

Japa

n

Can

ada

Spai

n

Irela

nd

Luxe

mb.

..

Nor

way

Fran

ce

OEC

D

Icel

and

Switz

er...

Chi

le

Swed

en

Pola

nd

Slov

enia

Gre

ece

Kore

a

Mex

ico

Isra

el

0

0.5

1

1.5

2

2.5

Overall Product Market Regulation (PMR) indicator, 2013

8

Recent reform efforts will help growth

The impact of recent structural reforms on GDP over 10 years

  GDPVia Employment

growthVia Productivity

growth

Impact on GDP growth over the horizon of 10 years (in %)

Product Market Reform 1.3 1.3

Labour Market Reform

Employment Protection Legislation 0.3 0.3

Pension reform 0.4 0.4

Total 2.0 0.4 1.6

1. OECD estimates for the impact of product market reform include changes to the product market regulation (PMR) as captured by the change in the OECD PMR indicator between 2008-2013, announced privatisations and reforms via EU commitments. The 2008-2013 change in the PMR is assumed to start having an effect on growth two years before other reforms.2. Impact on the labour market reform is assessed via the effect of the change in the employment protection legislation (EPL) on growth. Effect of the pension reform is based on a judgement and assesses the effect on employment via increased incentives for older people to stay in the labour market.Source: OECD calculations.

9

Main Findings

1. Slovenia grew rapidly before the crisis and today compares well on well‑being indicators.

2. The crisis exposed important weaknesses. The banking sector and the corporate sector need further restructuring.

3. Long‑term unemployment is high and unemployment among the young has increased steeply.

4. Rising public debt has to be put on a downward path, particularly in view of looming pressures from population ageing.

5. Business environment and regulation could be further improved to boost investment and attract capital.

10

Key Recommendations

1. Enhance the leading role of the Bank Asset Management Company to ensure swift restructuring of companies and liquidation of assets.

2. Increase resources for active labour market policies and better target assistance to the long-term unemployed and the low-skilled.

3. Focus fiscal consolidation on structural measures and strengthen the fiscal framework by a credible fiscal rule and fiscal council.

4. Pursue further pension reform and thoroughly reform the health sector to improve efficiency.

5. Continue with structural reform, including by privatising state owned enterprises and easing regulation on businesses.

11

Challenges in the banking and corporate sectors

12

Restructuring has strengthened banks

Source: IMF Financial Soundness Indicator database.

2011 2012 2013 20148

10

12

14

16

18

20

Regulatory Tier 1 Capital to Risk-Weighted Assets%

13

But more is needed

1. 2014 Q4 or latest data available.2. Average return on asset in the four quarters of 2014, except for France and Germany whose data refers to 2013.Source: IMF Financial Soundness Indicator database.

EST

LUX

DEU AU

T

BEL

FRA

LTV

SVK

ESP

PRT

SVN

ITA

IRL

GR

C0

5

10

15

20

25

30

35

40

A. Non-performing loans to total gross loans¹%

PRT

GR

C

AUT

ITA

IRL

BEL

SVN

ESP

FRA

NLD

DEU LU

X

LTV

SVK

EST

-0.5

0.0

0.5

1.0

1.5

B. Return on assets²%

14

Corporates are highly indebted

Source: OECD, Financial indicators database.

CH

E

USA

SWE

LUX

FRA

GBR AU

S

ISR

BEL

DN

K

CH

L

ESP

CAN ES

T

FIN

IRL

HU

N

POL

DEU CZE SV

K

NLD

AUT

TUR

GR

C

SVN

ITA

KOR

JPN

PRT

NO

R

0

20

40

60

80

100

120

140

160

180

Debt to equity ratio2013 or latest data available

15

Challenges in the banking and corporate sectors

1. Identify the most important firms to be restructured, and transfer all their assets to the Bank Asset Management Company.

2. Safeguard the independence and high standards of governance in the Bank Asset Management Company.

3. Monitor the implementation of the new insolvency regulation. Provide training for judges and insolvency administrators, and make out-of-court restructuring faster and more attractive.

4. Privatise state-owned banks as planned, without retaining blocking minority shareholdings.

16

Fiscal reform

17

Spending control is a challenge

1. Total general government expenditure corrected for exceptional net capital transfers and payments and other exceptional transfers.Source: OECD Economic outlook 96 database.

ISR

POL

CAN

DEU USA

CZE

HU

N

CH

E

AUT

GR

C

AUS

SWE

EST

NLD

PRT

ITA

NO

R

OEC

D

KOR

TUR

FRA

GBR ES

P

ISL

SVK

JPN

MEX NZL IR

L

BEL

SVN

DN

K

FIN

-2

0

2

4

6

8

10

12

14

Growth in public expenditure¹ net of one-offs, 2007-14 change% points of GDP

18

Ageing-related spending will rise

1. Based on "Cost-containment scenario", (Oliveira Martins and de la Maisonneuve, 2014). Where projections are not available over the period 2015-30, linear interpolation has been applied.Source: Secretariat calculations based on Economic Outlook no 96 projections.

HU

N

ITA

CH

E

PRT

USA

GR

C

EST

POL

SWE

GBR CZE JP

N

DN

K

ESP

FRA

IRL

ISR

AUS

ISL

CAN SV

K

DEU SV

N

NZL

KOR

AUT

NLD FI

N

BEL

LUX

0

1

2

3

4

5

6

Increased spending¹ on pensions and health care, change 2015-30 % of GDP

19

The tax mix hinders growth

1. Marginal tax wedge in % of total earnings, 2013: Individual earning 167% of average wage, single person with no children.2. 2013 or latest year available.Source: Public Sector, Taxation and Market Regulation database.

Chi

le

Kore

a

Japa

n

Pola

nd

Spai

n

Esto

nia

Uni

ted

Stat

es

Isra

el

OEC

D

Icel

and

Hun

gary

Net

herla

nds

Nor

way

Irela

nd

Finl

and

Slov

enia

Italy

Belg

ium

0

10

20

30

40

50

60

70

80

A. Taxes on labour are high for high earners¹

%

Esto

nia

Slov

ak R

epub

lic

Aust

ria

Chi

le

Net

herla

nds

Swed

en

Pola

nd

Hun

gary

Den

mar

k

OEC

D

Spai

n

Irela

nd

Icel

and

Isra

el

Japa

n

Luxe

mbo

urg

Belg

ium

Uni

ted

King

dom

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Property taxation revenues²

% of GDP

20

Fiscal reform

1. Focus fiscal consolidation on structural measures to increase cost efficiency in education, public administration and local government.

2. Adopt a fiscal rule with a credible and transparent expenditure rule and charge an independent and effective fiscal council with assessing adherence.

3. Reduce top tax rates on labour income. Increase recurrent taxes on real estate.

4. Increase the statutory and minimum pension ages and link them explicitly to life expectancy. Calculate pension rights over lifetime contributions.

21

Structural reform

22

Spending on active labour market programmes is low

1. 2012 or latest data available.Source: OECD Social Expenditure database.

MEX

CH

L

USA IS

R

JPN

CAN SV

K

CZE

SVN

NZL

EST

AUS

KOR

POL

ITA

PRT

NO

R

CH

E

OEC

D

LUX

DEU

HU

N

AUT

BEL

ESP

FRA

IRL

NLD FI

N

SWE

DN

K

GR

C

GBR

0.0

0.5

1.0

1.5

2.0

2.5

Public expenditure on active labour market programmes¹

% of GDP

23

People should work longer

Source: OECD Economic outlook 96 database.

TUR

SVN

HU

NG

RC

LUX

POL

BEL

ITA

AUT

FRA

SVK

ESP

EU PRT

CZE

MEX IR

LO

ECD

GBR FI

NAU

SN

LDU

SAC

AND

NK

KOR

CH

LES

TD

EU ISR

JPN

NO

RC

HE

SWE

NZL IS

L

0

10

20

30

40

50

60

70

80

90

Labour force participation rate, 2013 - population aged 55-64%

24

State-involvement and regulation are still high

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Components of Product Market Regulation (PMR) indicator

Slovenia Best Performers¹ Euro area

Note: the numerical PMR indicators represent the stringency of regulatory policy in specific areas on a scale of 0 to 6 with a higher number indicating a policy stance that is deemed less conducive to competition. In each case, it characterises the stance of regulation as it stood in early 2013 and does not reflect the reforms implemented since then.1. The simple average of the five countries with the lowest values of each indicator is shown.Source: OECD PMR indicators database.

25

FDI is low

1. Inward position at year end.Source: OECD FDI series of BOP and IIP aggregates database.

1997 98 99 2000 2001 02 03 04 05 06 07 08 09 10 11 12 130

20

40

60

80

100

120

Evolution of FDI¹

Czech Republic Estonia Hungary Poland Slovak Republic Slovenia

% of GDP

26

High R&D spending does not convert into much innovation

Gre

ece

Slov

ak R

epub

licPo

land

Turk

eyLu

xem

bour

gSp

ain

Italy

Portu

gal

Hun

gary

Can

ada

Uni

ted

King

dom

Nor

way

Esto

nia

Cze

ch R

epub

licEU

28

Net

herla

nds

EU 1

5Fr

ance

Belg

ium

OEC

DSl

oven

iaAu

stria

Ger

man

yD

enm

ark

Swed

enFi

nlan

dJa

pan

Kore

aIs

rael

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Gross domestic expenditure on R&D

% of GDP

Mex

ico

Slov

ak R

epub

licTu

rkey

Chi

leG

reec

ePo

land

Portu

gal

Cze

ch R

epub

licSl

oven

iaSp

ain

Esto

nia

Hun

gary

Aust

ralia

New

Zea

land

Italy

Nor

way

Icel

and

Luxe

mbo

urg

Irela

ndC

anad

aU

nite

d Ki

ngdo

mEU

28

Belg

ium

Aust

riaFr

ance

Uni

ted

Stat

esO

ECD

Den

mar

kIs

rael

Net

herla

nds

Kore

aG

erm

any

Finl

and

Swed

enSw

itzer

land

Japa

n

0

0.5

1

1.5

2

2.5

3

Triadic patent families% of GDP billion

USD PPPs

Source: OECD Main Science and Technology Indicators database.

27

Structural reform

1. Increase resources for active labour market policies and better target assistance to the long-term unemployed and the low-skilled.

2. Help older workers adapt to new tasks and technologies through life-long learning and targeted training programmes.

3. Continue privatising state-owned enterprises and strengthen their governance.

4. Introduce the ‘silence is consent’ rule for issuing licences to start a business and make obtaining construction permits and registering property faster. Reduce entry barriers in professional services.

5. Implement the government’s unified innovation policy. Strengthen collaborative links between major stakeholders of innovation policy.

28

More Information…

www.oecd.org/eco/surveys/economic-survey-slovenia.htm

OECD

OECD Economics

Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.