Decisions adopted by the Governing Board in its 325th regular meeting on 12 January 2006

At its meeting on 12 January 2006, the Governing Board of the Bank of Slovenia decided to leave the bank´s key interest rates unchanged. 
Based on analysis of economic trends, the Governing Board considers the monetary policy stance as appropriate. The level of interest rates is in line with the stability of the nominal exchange rate of the tolar against the euro, while current price trends and inflation expectations are in line with the target of medium-term price stability. The Governing Board of the Bank of Slovenia expects that Slovenia will continue to meet the criterion of price stability required for the introduction of the euro.

Euro area economic growth forecasts produced by certain foreign institutions were slightly revised upwards, while inflation gradually slowed in the last months. Economic growth was revised upwards mainly on account of the improvement in industrial production in Germany, France and Italy. According to the flash estimate, the euro area inflation rate fell from 2.3% in November to 2.2% in December and is thus still above the ECB target. Oil prices continued to rise from the end of November to mid-December. In the US, economic growth remains relatively strong and it set to persist in the near future. The US inflation rate has started to decrease, mainly due to lower oil prices. 

Economic trends in Slovenia remain favourable. On a year-on-year basis, third quarter real GDP grew by 3.7%. Household consumption and government spending were relatively strong as expected, while the contribution of the external trade balance to GDP growth diminished in comparison with the first six months. At the same time, the Statistical Office of the Republic of Slovenia revised its year-on-year first quarter and second quarter real GDP growth figures upwards from 2.6% to 2.7% and from 5.2% to 5.5%, respectively. Economic growth in the first three quarters of 2005 therefore amounted to 4.0%. Industrial production growth still lags behind GDP growth, and the growth rate in the construction sector further declined. Retail sales growth, however, remains rather strong.

Data relating to the number of persons registered at the Employment Service of Slovenia and the survey unemployment rate, which amounted to 6.3% in the third quarter of 2005, both reveal a gradual increase in unemployment. Nevertheless, in comparison with other EU countries the current unemployment rate in Slovenia is still relatively low. The increase in unemployment during an economic upturn suggests, however, that structural unemployment is on the rise. Moreover, a thorough analysis of unemployment data reveals that it is becoming more difficult for unemployed people with a lower level of education to find a suitable job, while the level of unemployment among better-educated people is much less alarming. Based on the available data, the Governing Board of the Bank of Slovenia considers the possibility of inflationary pressures, stemming from excessive wage growth, as rather small.

The National Assembly of the Republic of Slovenia has adopted the budget for 2006 and 2007. According to forecasts, the budget deficit is projected to amount to 1.4% and 1.2% of GDP, respectively. The December 2005 update of the Convergence programme specifies that the cyclically adjusted medium-term budget deficit target is equal to 1% of GDP and is expected to be met by 2008. This target is in line with the reformed Stability and Growth Pact and is specific to countries with low debt-to-GDP ratios and high potential for economic growth. In 2005, according to recent estimates, Slovenia met both fiscal criteria for the introduction of the euro.