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

The descent to the second depth

Gospodarska gibanja 446

Contracting of domestic demand was deeper than seasonal. The remnants of growth in the beginning of the year is due to private consumption as government expenditures for goods and services decreased and investments in fixed assets stagnated. Export demand began to abate in October 2011, the decline strengthened in the beginning of 2012. Expectations indicate that total demand will continue to decline; private consumption slowly or not at all, export demand rapidly. Yearly growth of exports is drying out. Negative trade balance with the EU member states was in March partly compensated by surplus with the rest of the world. If terms of trade would not worsen less than the EU terms of trade, trade balance of Slovenia would be even poorer. Nearly all indicators of business climate, except confidence in the retail trade, worsened. General deterioration of business climate was affected by diminished confidence in construction and services. Confidence decreased slightly in manufacturing, most often cited cause was domestic demand. Negative expectations settled in services; slightly better is the situation in retail trade, which is beside weak demand affected by competition and high labor costs. Business climate worsened in EU27 as well while the results of German IFO institute are more optimistic.

The drop of industrial production in March considerably decreased yearly dynamics in the first quarter. Industrial production plummeted in euro zone and EU27 as well. Value of construction works in March was higher than in February but ten percent lower than in March 2011. Number of tourist overnights is decreasing due to domestic tourists. Results in majority of transportation branches are constantly worsening. Number of registered jobseekers is decreasing rapidly, unfortunately not only because of new jobs but also because of the exit from labor market. Unemployment rate in euro area and EU27 grows rapidly; in March, there were nearly 25 million unemployed persons; the rate of unemployment is the highest in Spain and the lowest in Austria.

Costs of living increased in April, the long run dynamics strengthened slightly, as well. Prices of goods again increased more than prices of services; they grew in most sectors. Growth of seasonal new textile collections and oil contributed most. After quite a while long run dynamics of Slovenian inflation over passed the dynamics in the euro area. This is not likely to continue as indicated by price expectations. Producers prices increased in April, however longer run dynamics remained modest and uniform. Expected dynamics lags considerably behind long run average and expected dynamics in the euro zone. Prices of raw materials on the world market stagnate and they decreased in a year. The increase of gross wage in March was below normal seasonal value, longer run dynamics and the dispersion among sectors is decreasing. The data on the unit labor costs contradict the claims that labor costs are the key factor preventing normalization and growth. The unit labor costs in Slovenia are exactly where they should be.

According to still deficient data, public revenues increased considerably in April; the yearly growth rate and impulse trend increased as well. Domestic taxes on goods and services contributed the lions share. However, the jump might be caused by the shift in the timing, as there were no shifts in the very stable revenues of the value added tax on imports. The drop of excise tax was lower than seasonal. Direct taxes and other revenues of the public sector increased, their yearly dynamics did not; the increase of revenues from taxes on profits stayed out. Due to the data deficiency it is hard to estimate whether this is due to changes in the tax legislation or not. The rise of revenues of personal income taxes is most likely a consequence of account adjustments. Squeeze of credits continues. The downward trends are stable and will not change without interference of the monetary authorities, particularly the removal of rather senseless requests for additional capital. The squeeze of credits is accompanied by very slow growth of deposits and liquidity of non financial companies and population. The dependence of banks on foreign credits is decreasing very slowly. Interest rates on the money market have not yet calmed, the interest rates on the retail market are also not changing systematically. In a year, interest rates on new credits to population and non financial companies increased slightly, while growth of interest rates on deposits was more stable. Current account deficit and net foreign debt are increasing; the structure of deficit remains stable; the deficits on the trade account, income account ant current transfer account are accompanied by the surplus on the service account. Financial account reveals modest growth of foreign indebtedness while its structure indicates that capital enters through portfolio investments and exits through other investments. This can be explained by increased share of public debt in net foreign debt of Slovenia.

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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