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

Decline of wages and consumers' spending

Gospodarska gibanja 450

Total domestic demand stayed unaltered; the longer run dynamics did not change much, the trend continued falling. Government spending and its longer run dynamics increased slightly, private consumption stagnated, and investments in fixed assets decreased. The data for the first half of the year, published in September, indicate that the change in the structure of final demand compared to its structure in euro zone altered considerably only in private consumption. While growing faster in the first quarter it dropped in the second quarter as suggested by drastic reduction of expectations. The dynamics of other three components began to change as well but far less; with the dynamics of export equal to the dynamics in the euro zone, modest lagging of government expenditures and considerable lagging of investment. Exports ceased to be a generator of growth as foreign trade stagnates, exports to EU member states decreasing while exports to non-member countries growing. Business climate worsened again due to diminished confidence in manufacturing, services, and construction. Optimism in services diminished, confidence in construction decreased while confidence in retail trade strengthened. Business climate in EU27 worsened, as well.

Industrial production in August compared to production a year ago increased. According to original data by Statistical Office, it was slightly higher than in July and 4 percent higher than in August last year. Inventories of finished goods were lower than in July and higher than in August 2011. Industrial production in EU27 increased slightly compared to July but remained below last year. Construction continued to stagnate at very low level, moderate results in tourism were created by foreign tourists. Among transportation branches, road transportation fared well while air transportation fared worse. Maritime transportation joined bad performances of other branches. The state on the labor market improved a little bit, though the number of active population, employed and self-employed persons decreased compared to the state a year ago. Number of newly registered jobseekers increased; among those leaving employment offices, more than half got job or started business, while the rest joined non-active population. Unemployment rates in EU27 and in the euro zone continue to grow.

In September prices increased considerably, longer run dynamics and impulse trend strengthened, as well. While prices of services decreased, prices of goods increased, their dynamics strengthened for four consecutive months. Upward pressure, both in Slovenia and EU, was caused by raw material prices. Despite high increase in a year, base inflation which shows endogenously generated inflation remained similar to euro zone average. Industrial producers˙ prices increased in September mostly of the products exported to non-EU countries, those for domestic market stagnated. Expected growth of producers´ prices is similar to actual growth, while expected prices in retail trade is higher than longer run average. In the last month (to the middle of October) raw material prices (in €) decreased, particularly the prices of metals and foodstuff. In August, average gross wages increased in most sectors, but the rise lagged behind normal seasonal upsurge, and negative dynamics strengthened in majority of sectors, particularly in the public sector. The fall of wages was the biggest in education. The dynamics of wages has been decreasing constantly since the middle of 2010, and became negative in the middle of the second quarter which implies shrinkage of the nominal wage level. Ups and downs in the unit labor costs are caused by ups and downs in the number of working hours.

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