Some developments differ from what European Commission “knows”
Gospodarska gibanja 457
Drop of domestic consumption in February was more than seasonal, government spending decreased most. The trend of households spending at its lowest level since has turned upward, investment has even increased, but the trend is negative. The number of housing transactions stagnated, the number of new housing decreased. Export demand has intensified after the December break; the sustainability of this reinforcement is questionable. Exports to countries outside the EU strengthened with the dynamics in Slovenia ahead of EU dynamics. Short-term expectations do not indicate significant change of demand dynamics.
Despite surpluses in two of three months of the first quarter, quarterly trade balance remained negative; trade with the EU was falling, trade with non-EU countries growing. Decline in imports was caused by strong downturn in our country, export growth has been weak. The EU’s share in the Slovenian international trade declined, particularly with Germany, which was in imports outpaced by Italy.
The economic climate in April cooled a little. It was caused by the drop of confidence in the manufacturing and retail trade. In the services, the confidence improved but remained far below the longer run average. Confidence in the construction sector recovered and expectations for the next three months by the survivors in the sector strengthened, though it continues to be the most afflicting by lack of orders. Confidence indicator in retail trade in April decreased, the sector is most plagued by a lack of demand and strong competition. Economic sentiment in the EU largely deteriorated; orders in the construction declined, expectations in retail trade and manufacturing worsened.
Industrial production and production in manufacturing deteriorated slightly in February, while impulse trend turned up. In the EU27, industrial production rose in February, but yearly rates decreased. Among the EU countries for which data are available, industrial production in February compared to the previous month, rose in ten and fell in twelve countries. The value of construction works in February was higher than in January but a tenth lower than last year; a number of construction hours was also smaller. The total number of overnight stays of tourists increased slightly annually, number of domestic tourists decreased, number of foreign increased. Air transportation continued to decline rapidly, while number of passenger in public road transportation grew; there was a strong recovery in maritime transport. The labor market situation has eased somewhat. The number of unemployed fell in March and April. Most of the inflows to the employment offices were formed by workers who lost their jobs due to fixed-term employment, most of the outflows from the offices were created by those who found new fixed-term jobs or self-employed.
The annual price growth, despite an increase in April, fell again, the difference between the growth of prices of goods and services prices decreased. The difference between the harmonized inflation in Slovenia and in the euro area narrowed, especially rapidly decreasing are differences in base inflation which is in Slovenia lower than in the euro area. Industrial producer prices continue to slowly increase, the difference in growth between areas remain large, the prices of products for the domestic market and export markets outside the euro area have been rising, prices of markets within the euro area have been falling. The outlook does not show significant changes in the dynamics of prices in the next few months; expected retail prices of goods remained just above long-term average, expected prices of services stagnated. Short-term expectations show no significant changes in the dynamics of producers prices. Commodity prices in April rose, the most food prices, while prices of metals fell. However, prices of raw materials at the end of April remained significantly below the level a year ago.
Wages, in both the short and the long term, continued to fall, the differences in the dynamics were large. Long-term dynamics in most activities is negative, with the largest decline of wages in education. The reduction was partly caused by a number of working hours in February, which was significantly smaller than normal seasonal. Wages in the public sector continue to fall faster than in the rest of the economy, the drop was fastest in the education.
The dynamics of unit labor costs and total wage bill costs for three key segments of the public sector (government, education and health) shows that unit labor costs at the end of 2012 is under the level at the beginning of the crisis and that the reduction in health care and education was higher than in the euro area. However, employment in the public sector in Slovenia decreased less and total wage bill in health care and education before the middle of 2011 increased more than in the euro area. The gap afterwards began to decline, especially in 2012. The wage bill of narrow government accompanied the trend of the wage bill in the euro area, but fluctuated more. Relative development of unit labor costs in the public sector differed from the exporting sector which since the mid-2010 operates without major obstacles on the demand side. The unit labor costs in manufacturing have grown as fast as in the euro area. At the same time, the decline in employment in manufacturing was much faster than in the euro area, so that the wage bill costs since the end of 2010 lagged behind the wage bill costs in the euro area. As the exports after 2010 moved at the same pace as in the EU, the competitiveness, contrary to popular belief, including the EU Commission, in Slovenia increased faster than in the EU.
Government revenues fell in March and increased in April but they were quite below the revenues in last year. The drop of profit taxes contributed the lion’s share as the settlement of excess payments was negative; lower income taxes contributed as well. Social contributions in April improved, annual rate has risen. Due to holidays in April reliable assessment of the dynamics is to be seen. Domestic taxes on goods and services in April exceeded the taxes in April last year, excise tax contributed most of the differences. As the contribution of net exports (balance of goods and services) to the domestic product in the second part of last year increased significantly, lagging revenues from value added tax are not surprising.
Total loans to businesses and households declined in February and March, the annual rate did not alter. The loans to businesses decreased faster than the loans to households. Total loans to businesses and households stopped growing in the second quarter of 2010 and began to decline afterwards. Due to the tightened requirements of the European regulator (EBA), total credits began to decline again in the whole euro area. During the tightening of banks liquidity, the credit potential of banks to extend credit to companies and households was also decreased by increased lending to the government. Total loans (governments, companies and households) have begun to fall rapidly since last year but have remained higher than at the beginning of the crisis. Deposits are decreasing at a slower pace than loans, total deposits (by companies and households) in February and March even increased.
The effects of the ECB lowered interest rates have not yet been seen on the money market. The basic characteristics of interest rates on the credit market have remained unaltered; deposit rates for businesses are higher than in the euro area, for the households they are about the same. Lending rates have stagnated; for households they are lower than in the euro area, for the companies they are considerably higher.
February’s positive balance of payment turned the two-month balance to be slightly positive due to lower deficit in the goods account, higher surplus in the services account and unaltered deficits in the income and current transfers accounts. Net external debt of Slovenia at the end of February was lower than at the end of 2012, half of gross debt was sovereign debt.
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