• Velimir Bole
  • Jože Mencinger
  • Franjo Štiblar
  • Robert Volčjak

Ravage of credit drought

Gospodarska gibanja 444

Total domestic demand decreased considerably towards the end of the year. The dynamics of all three categories of domestic demand worsened; the least the dynamics of consumers spending, the most the dynamics of government expenditures for goods and services. Export demand in December was considerably weaker than in EU27 with the yearly growth being one half of yearly growth in the EU. The differences in the dynamics of value added by sectors between Slovenia and EU did not diminish. Two sectors, agriculture and construction, are in Slovenia in a much worse shape than in euro zone and both are shrinking. The dynamics of value added in other sectors is similar to the dynamics in the euro area. Expected foreign demand is failing; in EU even more than in Slovenia. Expected consumers demand did not change while expected demand in services turned up, slowly and gradually also in construction services. The slowdown of exports continued in January. Unusually high was deficit in trade with the rest of the world (outside EU) which can be explained by unfavorable terms of trade. Indeed, in the last two years import prices grew faster than export prices. Business climate is rather stable; the changes of indicators fluctuate up and down but basic characteristics remain unaltered both in Slovenia and EU.

Industrial production in January was slightly lower than in December and higher than in January 2011; the opposite was the case in EU27 where industrial production increased in fourteen and decreased in six EU countries with available data. There was no improvement in construction. Good results in tourism are due to foreign tourists. Activity in most transportation branches is decreasing with maritime transportation being an exemption. Number of active population and employees is decreasing, particularly of those employed in small businesses while number of self-employed is increasing as a ”refuge” for many who lost their jobs. After five months of growth, number of jobseekers decreased slightly in February. Newcomers to the employment offices are mainly those who lost their jobs. Unemployment in euro zone and EU27 is increasing, the differences among countries remain enormous.

Inflation in Slovenia is catching up with euro inflation. In February, prices of goods increased more than prices of services; energy prices contributed most to general price rise; only a few goods became cheaper. Base inflation in Slovenia still lags behind base inflation in euro zone. No great changes in the dynamics of inflation can be expected in the near future except if prices of raw materials in the world market jump; they however fluctuate. Labor costs in Slovenia calmed down more than in the euro zone; the staying behind accelerated when economic activity began to stay behind economic activity in the euro zone.

Public revenues decreased in February, large part of it was seasonal, but the longer run dynamics worsened, as well. The revenues of direct taxes increased, the revenues of indirect domestic taxes decreased. The falling out in two consecutive months might indicate the drop in domestic consumption. Insufficient “watering” of the economy by credits is holding back growth of Slovenian economy since the middle of 2010. A new deterioration followed in the middle of 2011. The lack of credits represents an obstacle even in manufacturing which faces normal demand. Interest rates on the money market decreased after enormous inflow of central bank money to banks. Revised data on the balance of payment alters last year balance of the current account to less favorable than in 2010, statistical error is however enormous: more than 500 millions €. Financial account indicates very modest decline of foreign indebtedness. In 2011, there was an inflow of capital to the country through direct and portfolio investment accounts and outflow through other investments account. At the end of 2011, net foreign debt of Slovenia exceeded 11 billion € and gross debt 41 billion €.

Full article is available in Slovenian language.

Only a part of the articles in the publication Gospodarska gibanja (Economic Trends) is written in the English language. Please visit the Slovenian web page.


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