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

Improvements without assistance or despite “assistance”?

Gospodarska gibanja 460

In the second quarter of 2013, there was an improvement in longer-term GDP growth both in the euro area and in Slovenia. Acceleration in Slovenia was stronger; after four quarters of increasing gap, the gap between Slovenia and euro area noticeably decreased. The structure of growth improved, the most favorable were dynamics of exports and investment. Strong compression of government spending which should lower fiscal deficit since the second quarter of last year, inhibits growth of government spending significantly more than in the euro area. In the second quarter of this year, the difference was even greater. Changing the structure of spending completely changed balance of trade, which far exceeds surpluses in other euro area countries. Expectations do not indicate significant changes in the dynamics of spending components.

Slovenia had also in July, a surplus in merchandise trade, which reduced the deficit in seven months to a hitherto unknown small size. Both exports and imports are increased year on year in July, the former more than the latter. Croatia’s EU membership brings a positive shift in the balance of trade with EU member states while reducing the trade surplus with non-EU countries. If the EU continues present economic policy, exports will continue to be the main engine of growth particularly in the central European countries, the Czech Republic, Hungary and Poland.

The economic climate stabilized in August. Confidence indicator in manufacturing was higher than the previous month and year, and on the long run average, expectations also improved. In the services sector, confidence improved, confidence in the construction and retail trade rectified while the expectations in the retail trade worsened slightly. The economic climate in August improved in the EU27 as well.

Industrial production increased in the annual comparison. The value of construction works in July compared to June decreased, but was higher than a year earlier. Domestic tourism demand decreased while the number of overnight stays by foreign guests increased. The air passenger transport and urban transport increased, there were more passengers at Ljubljana airport while traffic of goods in the Port of Koper dropped.

In the labor market, the situation worsened, the number of active and employed population decreased, the number of employees also. There were less registered job seekers at the end of August; among the new job seekers are mainly due to the expiry of the fixed term employment, among the departing two-thirds got the job, and a third did not. The unemployment rate in the EU27 continued to grow, but slowly, the differences between individual states are increasing.

Prices rose in August, long-term dynamics remained unchanged. The prices of services increased, while commodity prices decreased. Annual inflation in Slovenia is still higher than in the EU, the growth of producer prices is very slow. The dynamics of price expectations continue to deviate from actual inflation, in the services they vary significantly below expectations, the expected price of the goods in retail fluctuate over the long-term average, expected producer prices are on the long-term average. Dynamics and range of commodity prices are set by oil and gold.

Slovenia is again stuck (down!) by the highest reduction in unit labor costs in the year. The labor cost of general government continues to lag behind the increase of labor costs in the euro area and relative labor cost of general government in Slovenia since the crisis was reduced by around 12%! In the private sector a unit labor costs are increasingly lagging behind the corresponding costs in the euro area, the relative competitiveness has therefore increased.

Government revenue declined in August, but the trend rate of growth remained significantly high. Revenues of direct taxes increased significantly in August, while the annual growth rate, due to last year’s very strong August decreased. The bulk of the August increase in direct taxes was contributed by income tax, social security contributions remained practically unchanged, but lower than last year. Indirect taxes in August brought less money than in July, but the trend rate of growth remained high. The yield of value added tax and excise duties decreased. Reduction of excise duty is primarily seasonal, the VAT shortfall could be a result of a large improvement in the trade balance.

Loans continue to decline; corporate loans faster than loans to households. Controlled liquidation of two banks will accelerate the decline. The tightening of the requirements of the regulator stopped credit growth in the middle of 2010, accelerating retreat of foreign banks (in most of the new EU member states) in the middle of 2011 altered the stagnation to steady contraction. In the third quarter of 2011 the reduction of the total loans in the euro area began. Break is primarily due to increased capital requirements by the end of the third quarter of 2011 set by regulator (EBA). Due to lack of supply of new capital banks began to shrink assets, which weakens especially lending to middle and small businesses.

Since the third quarter last year, deposits virtually stagnated; deposits of the population have been slowly shrinking, deposits of companies have been increasing. Total deposits (excluding government deposits and banks) grew since the beginning of the crisis to the beginning of 2012 almost uniformly. They came to a halt last year when the deposits of the population began to diminish. Scaling of total deposits stopped at the end of last year, since then they grow at the same pace as before and, as in the euro area. Interest rate on the wholesale and retail market experienced little change.

Errors and omissions in the current account balance of Slovenia, increasing from month to month prevent a reliable interpretation of the current international economic relations. By ignoring this methodological weakness, the surplus in the current account by the end of the year would be close to 8% of GDP. In the financial account, net increase in assets or decrease in foreign liabilities of EUR 2 billion was achieved. Net indebtedness decreased 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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