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

Sluggish expected demand, lagging labor costs, and declining credits shape recession

Gospodarska gibanja 459

Weakening of the demand, which began in mid-2011, stopped in the first quarter (the percentage of companies for which insufficient demand is a serious obstacle, has not increased in the last few months). However, insufficient demand affect companies in manufacturing and even more so in service sectors. The situation in the service sectors is worse because insufficient demand has been the obstacle since 2009. The improvement, which occurred in the EU in 2010, did not appear in Slovenia. Expectations indicate that demand dynamics remains weak and that vigor for recovery is insufficient; the dynamics of expected demand at the end of the second quarter began to fluctuate. Export expectations are similar to the expectations in the EU. They reached the lowest level at the end of the third quarter last year, strengthened until May, and have stagnated since then.


Export dynamics fainted in the middle of the year. As import dynamics is even weaker, negative trade balance fell sharply and, in June, became positive. Economic climate stabilized in July, the confidence fell in manufacturing and strengthened in services. After stagnant long-term average, expectations in, what was left of the construction sector, recovered in June, and declined in July. Confidence in the retail sector have stayed stable, while it was improving on the year to year comparisons. Orders in the industry have continued to be a quarter lower than their “normal” level.

Industrial production in June worsened in the annual comparison, the trend is decreasing. In EU27, production increased in fourteen and fell in eight states. The number of overnight stays of tourists increased, this time domestic tourists contributed, as well. Foreign tourism strengthened the air passenger traffic. The crisis has continued to benefit public road passenger transportation and to harm harbor transportation in Koper.

The decline in unemployment discontinued in July, repeating the movement from previous years, reducing unemployment in the first half of the year following by an increase in the second. It seems that the level of job seekers will rise to 120 thousand. As in Slovenia, unemployment rose to new “normal” levels of more than 12 percent in the euro area and 11 percent in EU28, as well. The differences between countries remain unaltered; Austria being far the best while Spain and Greece far the worst performers.

Increased rates of value added tax discontinued the slowdown of inflation. The bulk of relative strengthening -reducing the seasonal impact, was triggered by a higher value added tax rates. Producers prices fell in June, the dynamics of the spending groups did not differ. In contrast to actual movements, price expectations suggest a more vigorous growth. Though expected producer prices are on the long-term average, the expected retail sale prices were significantly above long-term average. For services, the expected prices remained below long-term average. Uncertainty of global economic recovery accelerated decline in commodity prices. This, except for oil, which is more expensive, is also true for the annual changes.

After the rise in May, wages fell in June. Differences among sectors were small, wages in the public sector were declining more than in the business sector. Labor costs, both in the business and in the public sector, have been since the beginning of the crisis lagging behind their growth in the euro area, in the business sector for about 8 percent. Labor costs in the public sectors were fluctuating due to delayed impact of the 2008 wage bill, which dramatically worsened their management. However, since the beginning of the crisis relative salaries in education lagged behind euro area salaries by 14, in health by 5, in the government by 10 percentage points.

General government revenues stayed stable in July, but as the July season is weaker, the longer term dynamics increased. Revenues from domestic taxes on goods and services increased most, revenues from value-added tax on imports were also higher than last year, while excise duties were left behind the corresponding values in the last year. Direct taxes and other revenues continued to decline in July, their long-term dynamics declined even more. Personal income taxes, which are seasonally low in July, were much lower than last year. Revenues from direct taxes were reduced also due to lower withholding tax on corporate income. Namely, despite the reduced tax rate, advance tax had not been appropriately reduced last year; thus, huge refunds of overpayments declined income tax revenues in March and April. Revenues from contributions declined as well, although the decline in longer-term dynamics ended.


Loans to non-financial corporations and households fell in May; the long-term dynamics of credit contraction was accelerating similar to their dynamics in the euro area. Though, Slovenia is notably hit by withdrawal of funding from foreign banks, the worsening is likely to be accelerated by additional capital requirements of the regulator.

The current account surplus in the first half of the year exceeded one billion €, which is close to 7 percent of semi-annual GDP. An extremely large statistical error, increasing from month to month however makes the figures uncertain. Although the surplus is “a positive sign of consolidation”, its size reflects poor situation of the Slovenian economy. June as well as semi-annual surplus is a result of surpluses in goods and services trade, a smaller deficit in factor services, and surplus (in June) and low deficit (in the first half of the year) in transfers. Cumulative six-month changes in the capital and financial account correspond to the size of current account balance. Net foreign direct investment decreased while portfolio investments increased replacing capital outflow through the account of other investments. Net external debt has fallen to the level at the end of 2009.

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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