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

Mistaken economic policy intensified the crisis

Gospodarska gibanja 454

Mistaken economic policy intensified the crisis

Instead of improvement, the dynamics of key components of final demand which had enabled weak growth of GDP in 2011, worsened in 2012. Exports lagged behind dynamics in the euro zone, private expenditures which had been faster in 2011, began lagging as well, government spending lagged even more. Staying behind stabilized in investments. Mistaken “austerity” measures and dealing with, for the short run, irrelevant issues can be blamed. In January, expected demand strengthened slightly. However, expected exports remained below average while other components of final demand were close to the averages in recent years but far behind averages before the crisis.

In November, exports stagnated if compared to previous year, imports decreased; resulting trade surplus contributed to the decrease of yearly trade deficit. Terms of trade at the end of 2012 worsened considerably if compared to previous year while terms of trade improved in EU27. Business climate picked up slightly in December; enhancement was a result of increased confidence in nearly all observed sectors. Expected exports and employment increased in manufacturing. Optimism reappeared in services though it lagged considerably behind long run average, confidence in construction increased but on the level half of pre-crisis capacities. Expectations in retail trade, badly affected by lack of demand, improved slightly. In EU27, general economic climate improved somewhat as well.

Industrial production lowered both in a year to year comparison and measured by short run impulse trend. The situation in EU27 and in euro zone is similar. Among the countries for which data are available, industrial production increased in seven and decreased in fourteen. The value of construction works was in November higher than in October, but at the level one fifth lower than a year ago. Tourists´ overnights decreased both in the short and in the long run; the fall in foreign tourism joined domestic tourism. Among transport branches, public road transportation improved, activity in other branches worsened, particularly in maritime transportation. The situation in the labor market worsened considerably in December; number of jobseeker increased to 118 thousands; the number of newcomers being twice the number of those leaving employment offices, and only half of them got employed or self-employed.

In December, costs of living dropped; prices of services remained unaltered, prices of goods lowered due to sales. Harmonized index of costs of living exposed similarities between Slovenia and euro zone. Higher longer run dynamics in Slovenia was instigated by excise taxes. Industrial producers` prices in December dwindled; there were only small differences in different markets. In a month between December 15th and January 15th, world raw material prices, particularly for agricultural goods, decreased while prices of metals and oil prices increased. Average wages increased considerably in November compared to October. However, the increases were lower than normal seasonal increases; thus, wages continued to decrease both in the long and in the short run. The decline is a consequence of lower wage per hour and lower number of working hours. The increases in November compared to October, and the decreases in the yearly and impulse dynamics were more or less equally spread over all sectors.

There are no new data on public revenues. Credits and deposits began to decline faster and faster; the drop in December was stronger than seasonal. This holds both for credits to households and for credits to non-financial companies. The situation in the euro zone is, due to increased capital/assets ratio requirements, very similar; credits in euro zone are 6, in Slovenia 8 percent lower than they were in the beginning of the crisis. The deposits decreased less as current account surpluses enable the shrinkage of deposits being slower than the shrinkage of credits. Interest rates of ECB have not altered, retail interest rates for credits have not changed much.

Recession increased current account surplus reaching close to 3 percent of GDP. The improvement in the balance of payment is due to smaller trade account deficit, larger services account surplus, unaltered income account deficit, and considerable deficit on the account of current transfers. The largest changes in the financial account are practically zero portfolio investments balance and lower outflow of capital through other investments. At the end of October, gross foreign debt reached 41 billion €, and net foreign debt 14 billion €; the share of public sector amounted to 47 percent of total foreign debt.

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