Presentation of the OECD 2017 Economic Survey of Slovenia

OECD ECONOMIC SURVEY OF SLOVENIA 2017 Boosting investment through better skills and regulation Ljubljana, 5 September 2017

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

@OECDeconomy @OECD

The economy is rebounding after a long recession

2

Growth is strengthening Quarterly GDP (Y-o-Y changes) 10

Contribution of domestic demand (percentage points)

8

Real GDP growth (%)

6 4 2 0 -2 -4 -6 -8 -10

2000

2001

2002

2003

2004

Source: OECD Analytical Database.

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 3

Income convergence has resumed Income/capita gap to the upper half of OECD countries % - 30

- 40

- 50

- 60 SVN - 70

2006

Source: OECD Analytical Database.

CZE 2008

HUN 2010

POL 2012

SVK 2014

2016

4

The unemployment rate is declining % of labour force aged 15-64 15 12 9 6 3 0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: OECD Employment and Labour Market Statistics (database)

5

Well-being is high OECD Better Life Index (higher is better) Slovenia

OECD Subjective well-being

Income and wealth 10 8

Jobs and earnings

6 Personal security

4

Housing

2 0

Environmental quality

Civic engagement and governance Social connections

Work and life balance

Health status Education and skills

Source: OECD (2016), Better Life Index database 6

Income inequality is low Income redistribution (90/10 ratio of the average income of the top decile to that of the bottom decile), latest available data

Ratio 60

90/10, before redistribution

90/10, after redistribution

50 40 30 20

Source: Calculations based on the OECD Income Distribution Database

CHL

USA

ISR

ESP

EST

GRC

ITA

TUR

LVA

PRT

LTU

GBR

CAN

IRL

POL

NLD

KOR

DEU

SWE

NOR

FRA

AUT

SVK

CHE

LUX

BEL

DNK

FIN

SVN

CZE

0

ISL

10

7

Bolstering investment is key for higher productivity Total investment, as a percentage of GDP 35 Slovenia

Hungary

Czech Republic

Poland

Slovak Republic

30

25

20

15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: OECD, Analytical database 9

Firms are facing increasing labour shortages % of firms reporting labour shortages 40

SVN

EU28

Euro area

35 30 25 20 15 10 5 0

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: Eurostat, Industry database.

10

Businesses face a heavy regulatory burden Product market regulation indicator, index scale of 0 – 6 from least to most restrictive, latest available data Index 2.5 2.0 1.5 1.0

0.0

NLD GBR AUT DNK NZL ITA SVK AUS EST FIN DEU PRT HUN BEL CZE JPN CAN ESP IRL LUX NOR OECD FRA ISL CHE CHL SWE POL SVN GRC KOR MEX ISR TUR

0.5

Source: OECD PMR indicators database.

11

Securing fiscal sustainability

12

Gross public debt is now declining % of GDP 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: OECD 13

The fiscal deficit is still falling % of GDP 0.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

-2.0 -4.0 -6.0 -8.0 -10.0 -12.0 -14.0 -16.0 Source: OECD 14

Ageing endangers fiscal sustainability General government gross debt, % of GDP 200 180

Balanced budget scenario

1 % of GDP deficit

Without offsetting ageing-related costs

160 140 120 100 80 60 40 20 0

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060 Source: OECD calculations based on OECD (2017), OECD Economic Outlook: Statistics and Projections (database), December; OECD (2017), Main Economic Indicators.

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Key fiscal and spending recommendations  The government should pursue its 2020 fiscal balance objective, and preferably frontload consolidation to avoid overheating.  It should also maintain spending ceilings, pursue efficiency improvement and adjust the structure of public spending to avoid a renewed increase in public debt.  Faster, well thought-out privatisation would reduce public debt and the high level of contingent liabilities.  Pension system:  Raise the effective and statutory retirement ages.  Cover shortfalls through additional contributions and lower pension indexation.  Increase incentives to work longer.  Health-care system:  Allow hospitals to adjust their health services to changing demand, by including multi-year investments and allowing them to keep cost savings.

16

Raising wages and living standards by investing in capital and skills

17

Long-term unemployment remains high Share of long-term unemployed (over one year) in total unemployment 70

%

SVN

60

OECD

EU28

50 40 30 20

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

0

2000

10

Source: OECD, Labor Force Survey - Sex and Age composition database

18

Older workers retire early, undermining inclusiveness Employment rate for older workers (aged 55-64), 2016 %

90 80 70 60 50 40 30 20

0

TUR GRC SVN LUX BEL POL SVK ESP AUT HUN FRA ITA PRT MEX IRL CZE OECD LVA FIN CAN USA AUS NLD GBR CHL EST KOR ISR DNK DEU JPN CHE NOR SWE NZL ISL

10

Source: OECD, Labor Force Survey - Sex and Age composition database 19

Older workers have low literacy skills Mean literacy and numeracy proficiency scores for 55 – 65 year-olds, 2015 Score Literacy

Numeracy ITA

300 250 200 150 100

JPN

NZL

SVK

UK1

USA

AUS

CZE

SWE

NOR

NLD

EST

CAN

FIN

UK2

BEL

DEU

DNK

IRL

OECD

AUT

POL

GRC

KOR

FRA

SVN

ITA

ISR

ESP

TUR

0

CHL

50

Source: OECD, Survey of Adult skills(PIAAC), Table A3.2 (L) and (N) 20

Better tertiary educational outcomes will boost investment in skill-intensive sectors Mean literacy and numeracy proficiency scores for adults with tertiary education, 2015 Literacy

Score

Numeracy

350 300 250 200 150 100

JPN

NLD

FIN

SWE

AUS

CZE

BEL

NOR

NZL

USA

POL

AUT

UK1

UK2

SVK

FRA

DEU

DNK

OECD

IRL

KOR

CAN

EST

SVN

ESP

ITA

ISR

GRC

TUR

0

CHL

50

Source: OECD, Survey of Adult skills(PIAAC), Table A3.2 (l) and (N).

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Key recommendations in the labour market and skills development  Improve general skills of vocational students through use of problem-based learning, combined with retraining of teachers. Raise the work-experience content of technical programmes.  Increase training to help long-term unemployed to re-enter the labour market.  Improve life-long learning by using adult training vouchers or tax credits to increase training opportunities.  Eliminate the legal requirement that wages increase automatically with age.  Harmonise the maximum duration of unemployment benefit across age groups.  Link university funding to students' labour market outcomes.  Equalise tuition fees for full- and part-time students on a per course basis, coupled with grants and loans for those from poor families.

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Fostering productivity by improving regulation and enhancing competition

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Regulatory quality could be improved 4

Transparency of ex post evaluation

3.5

Best

Systematic adoption of ex post evaluation

3

Oversight of ex post evaluation

2.5

Methodology of ex post evaluation

2 1.5 1

Worst

0

GRC TUR IRL SVK USA FIN CZE JPN ESP FRA PRT CHL SVN NOR HUN ISL ITA NLD LUX DNK POL ISR KOR NZL AUT EST SWE CHE CAN BEL EU DEU MEX GBR AUS

0.5

Source: 2014 Regulatory Indicators Survey results 25

Entry barriers hinder investment in new technologies Real gross value added per worker in professional services is low, PPP, 2014

EUR thousand

Architecture EUR thousand

120

120

100

100

80

80

60

60

40

40

20

20 0 GRC LVA PRT HUN EST POL SVK SVN ITA FIN ESP SWE DNK AUT EU28 FRA NLD DEU LUX BEL GBR NOR

0

GRC LVA PRT HUN SVN ESP ITA POL SVK BEL IRL NLD EU28 FIN AUT DNK SWE DEU FRA LUX NOR GBR

Engineering

Source: Eurostat, "Structural business Statistics - Services", Eurostat Database.

26

The competition authority has had few successful cases Enforcement outcomes, 2014

47%

5% 8%

CPA decisions partially upheld by court Cases remanded back to CPA for reconsideration Cases dismissed by the Court CPA decisions fully upheld by Court

40%

Source: The Slovenian Competition Protection Agency

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0 S - Other service activities

R - Arts, entertainment and recreation

Q - Human health and social work activities

P - Education

O - Public administration and defence; compulsory social security

N - Administrative and support service activities

M - Professional, scientific and technical activities

L - Real estate activities

K - Financial and insurance activities

J - Information and communication

I - Accommodation and food service activities

H - Transportation and storage

G - Wholesale and retail trade; repair of motor vehicles and motorcycles

F - Construction

E - Water supply; sewerage, waste management and remediation activities

D - Electricity, gas, steam and air conditioning supply

C - Manufacturing

B - Mining and quarrying

A - Agriculture, forestry and fishing

State owned enterprises are still present in many sectors

70

60

50

40

30

20

10

Number of SOEs

Source: Slovenian Sovereign Holding (http://www.sdh.si/sl-si/upravljanje-nalozb/seznam-nalozb# - February 2017); ORBIS data base.

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Key recommendations for improving regulation and enhancing competition  Apply consistently a common RIA framework:  including effective quality control, and  training to carry out ex ante and ex post regulatory evaluations.  Simplify judicial proceedings.  Increase the competition authority’s resources and staff expertise.  Shrink the list of regulated professions, and, where regulation is retained, move to less restrictive forms.  Develop a common approach to cost-benefit analysis for project selection.

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Key recommendations for improving regulation and enhancing competition (continued)  Strengthen SOE governance:  by directing them to focus on core activities,  allowing more management pay flexibility and  strengthening supervisory boards.  Follow through with privatisation, and narrow the group of SOEs that are considered strategic.  Implement effective separation of activities and non-discriminatory thirdparty access to networks. Privatise competitive activities, except in sensitive sectors.  Avoid technology biases in renewable-energy subsidies.

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