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

Credit drought continues; it is strenghtened by EBA constraints

Gospodarska gibanja 445

Domestic  demand  dropped  considerably  in  January;  the  drop  was however  seasonal; longer run dynamics strengthened and growth of impulse trend increased to the record level of the last two years. Final demand improved in all three sectors; households, government, and investment expenditures. Expected demand  for  goods  weakened,  expected  demand for services strenghtened. Export is stagnating at the level slightly higher than last year; imports and prices of oil contributed most to the unusually large imports from non EU countries which exceeded exports to them. Business climate is fluctuating both in Slovenia and EU but on the levels significantly bellow long run averages.

Growth of industrial production strengthened in February; it was a result of a solid growth of activity in manufacturing, very strong growth in electricity, gas, and water supply, and large drop in mining activity. Industrial production in February compared to January increased in nine, and decreased in thirteen EU countries for which data exist. The value of construction works continued decreasing in February. Rather tiny growth of a number of tourist  overnights  was  enabled  by  modest  growth  of  foreign  tourism  accompanied by a decrease of domestic tourism. Air transportation is the worst performer among transportation branches, while maritime  and  port  transportation  are  in  better  shape; but the curve of impulse trend turned down for both. Number of employed persons keeps decreasing; slower in large companies and institutions, faster in small businesses; many those who loose jobs try to find work in a riskier self-employment. Number of registered jobseekers dropped in February. Unemployment remains the major problem in EU; in a year, it decreased in eight and increased in eighteen member states.

Inflation continued to calm down; the increase of retail sale prices in March lagged behind normal seasonal rise, longer run dynamics decreased. Prices of goods continued to grow faster than prices of services. The price dynamics remained lower than in the euro area. Producers prices increased in March, while longer run dynamics keeps slowing. A reversal of goods and service prices can be expected in a few months. Raw material prices decreased in the last month; they remain lower than they were a year ago. Wages calmed down, the decrease in February was stronger than seasonal. Since the beginning of the crisis, and  with  exception  of  the  sector  providing  electrical  energy, gas and water, unit labor costs stopped increasing which characterized the period before 2009. Thus, the data do not confirm popular mantras of decreasing competitiveness.

The data on public revenues remain partial. Total public revenues increased in March; the growth was higher than seasonal. Both, direct and indirect taxes increased; direct less than indirect. Taxes on profits and personal income taxes are lagging while the increase of taxes on goods and service was mainly caused by the change in the timing of payments in February. Total tax revenues in the first quarter were, despite increases in March, smaller than a year ago.

After  drastic  fall  at  the  end  of  last  year  and  modest  increase  in  January,  credits  decreased again in February; they were 2.2 percent lower than a year ago. Credits to non-financial business sector are decreasing even faster than total credits. The requests of the regulators make the lending to government better choice than lending to business companies and households; lending to government ensures liquidity, reduce risks and is also profitable. The behavior is strengthened by the requests of EBA for additional capital. The decrease of credits diminishes the deposits of private non-financial entities. Interest rates have not yet stabilized; they are decreasing on the money market while the changes on the retail market are rare and smaller.

The deficit in the current account in two months was larger than a year ago. This is the result of slightly higher deficit in the trade account, considerable surplus in the service account and much worse performance in the income and transfers accounts. Outflows of profits from Slovenia exceed inflows of profits of Slovenian companies abroad, receipts from the EU budget lag considerably behind payments to the EU budget. Financial account indicates further increase of indebtedness; FDI were modest, 600 millions € of capital flew out through portfolio investments and 900 flew in through other investments. At the end of January, net foreign debt reached 11.6 billion € and gross foreign debt 42 billion; the share of government in it increased to 45 percent.

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.


    Subscribe to a magazine and get free access to articles.


User login

Enter your username and password here in order to log in on the website:

Have you forgotten your password? Subscribe!