Economy of Slovenia in 2017: Employment Market, Investments and Wage System in the Public Sector

The Institute for Strategic Studies prepared a forecast of the investment climate in Slovenia and in the neighbouring countries of the Western Balkans region. Studies have shown that in 2017 the economy of Slovenia will be particularly influenced by the following three spheres: employment market, investments and wage system in the public sector.

Estimates made by the staff of the Institute are based on their own models containing 34 variables. The study has shown that in 2017 there will be three spheres of key importance for the country: the labour market, the investments to Slovenia and the wage system in the public sector. These indicators will be of major risk to the economy of Slovenia growth in 2017.

Let us briefly mention the indicators of Slovenia in comparison with other countries of the Western Balkans. This is important not only because the Western Balkans receive two-thirds of products exported to Germany, which is the largest outlet for Slovenian export products. The Balkan countries are the Slovenia’s direct competitors when it comes to getting new contracts and investments.

Investment Climate Assessment (OIO) in 2017

According to experts, in 2017 Slovenia will continue to be the most developed country in the Western Balkans. However, it is caught up with Croatia.

General OIO Policy Socio-economic conditions Investment barriers Rule of Law Security
Slovenia 1 1 1 1 1 1
Croatia 2 3 2 8 2 2
Montenegro 3 3 2 6 3 3
Serbia 4 2 8 2 3 7
Macedonia 5 5 4 2 7 3
Albania 6 8 6 2 6 5
Bosnia and Herzegovina 7 6 7 6 3 8
Kosovo 8 6 4 2 8 6

Key Opportunity for Slovenia in 2017: Adoption of Measures to Promote Employment

The situation on the labour market in Slovenia allows for the optimistic expectations in the coming year. After almost a decade of high unemployment caused by the economic crisis of 2008, the situation in the country is gradually improving; in particular, this is reflected through the increase in the number of vacancies in Slovenia. Even the most stringent experts of the European Commission acknowledge this fact.

In their last report, they emphasized that the unemployment rate fell by 8.4% in 2016. This positive trend will continue in 2017, because according to the Brussels forecast, the unemployment rate will decrease by 7.7%. Of course, unemployment is only one side of the coin.

However, the other side is positive too, because Slovenia is gradually increasing the level of employment. In 2016, it grew by 1.1%, and, according to the forecasts from Brussels, it will continue growing in 2017 by 0.9%. The number of vacancies in Slovenia is growing steadily. In the third quarter of 2016, there were 12,000 job offers, which is 170 more than in the second quarter.

These optimistic trends are a chance for the Government to resolve long-term problems in the labour market (reduce the number of the unemployed and increase the number of vacancies in Slovenia). The fire is extinguished. Now it is time for the restoration, repair and protection from the next fire. However, the employment rate among young and elderly employees still leaves much to be desired.

The employment rate of people aged 55 to 64 years is only 35%. One in three unemployed persons is over 50 years, which has been indicated by the Organisation for Economic Cooperation and Development (OECD) for several consecutive years. One in five young people is unemployed (20.6%), which contributes to the mass emigration of future entrepreneurs, innovators and scientists, who failed to start a business or find a vacancy in Slovenia.

Every year about four thousand young professionals leave Slovenia. Long-term unemployment is an additional problem. According to the OECD data, half of the unemployed in Slovenia have been living under this status for more than one year, and a third of the unemployed—for more than two years.

The way out is obvious. Slovenia needs certain measures to be taken to promote the employment of elderly workers, young people and the long-term unemployed. In 2016, the authorities already started addressing this problem on the official level. The Government adopted three important documents: “Za dostojno delo” (Decent Work), “Starejši in trg dela v Sloveniji” (Elderly Workers and Labour Market in Slovenia) and “Bela knjiga o pokojninah” (White Paper on Pensions). However, there are still many possibilities for further improvement, and they should be used right in 2017.

The Biggest Challenge in 2017: Without Reforms Slovenia Will Underinvest

In recent years, the Government had alarming figures in the field of investments. This was reflected both on the volume of investments to Slovenia and on the total amount of investments abroad.

If we compare Slovenia to a ship, then in recent years, there have been much arguing about where to turn the steering wheel, forgetting that the vessel needs maintenance and modernization. Other countries do not commit the same mistake.

These conclusions follow from the report on the global investments prepared by the United Nations Conference on Trade in 2016. In 2015, investments grew by 40% at the global level and reached the highest level since 2008. The key trade partners of Slovenia are Italy and Germany. They have entered the top twenty leading countries in the world, which in 2014–2015 were considered the most favourable for the foreign direct investments.

The status of inbound and outbound investments in Slovenia in 2015 was lower than before. In 2015, investments to Slovenia accounted for 25.7% of GDP, and the Slovenian investments abroad made 12.5% of GDP. This figure is significantly lower than the average rate in the EU, which equals to 49.6% of GDP for inbound investments and 56.4% of GDP for outbound investments. Slovenia is lagging behind the average world figures as well.

The main obstacles to investments remain tight labour market and high taxes, low labour ethics, policy intervention in the economy and non-observance of the rule of law. In addition, in recent years the labour costs per unit of production in Slovenia have gradually reduced under the influence of a marked increase in productivity. The World Economic Forum also notes this fact in its Global Competitiveness Index.

If the country wants to keep up with competitors and convince investors that investments to Slovenia and business environment are more attractive and stable than the ones of its competitors, it will have to stimulate innovation activities of enterprises, especially the small ones working in the service sector. In Slovenia, 43.8% of innovative companies operate in the service sector, which is below the EU average level of 46.8%.

The Major Problem in Slovenia in 2017: Wage System Reform in the Public Sector

The year 2016 has exposed the old wounds of the Slovenian public sector. The strike of health officials lasted for almost the whole November 2016, and its suspension on 21 November was more of a patch than a real remedy. Let us recall that according to the agreement between the Government and the Union of Physicians and Dentists, a pause in the strike will last for two months, until 23 January 2017.

The health officials and the Government have reached a consensus on the verification of standards and norms of the Healthcare Bluebook (Modra knjiga). This will make it possible to achieve an average level of the number of doctors per 1,000 citizens in the EU Member States. The agreement on awarding those doctors who work in excess of the norm has been also adopted. In 2017, this agreement will result in 40 million euros of additional expenses for the state treasury.

The Government is not yet ready to meet the requirements for the withdrawal of health officials from the single system of remuneration, which could cause chaos in the public sector, so we can expect the continuation of negotiations between the parties in 2017. The Government will also continue to negotiate with the public sector trade unions that demand higher wages for the lowest paid workers, as well as the changes in the conditions of recourse payments and bonuses.