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

There are no reasons for contraction of GDP in 2014

Gospodarska gibanja 463

International and domestic institutions fiercely compete in forecasting catastrophic deterioration of economic activity in Slovenia. According to them, the performance of the country will be in 2014, together with Cyprus, the worst among EU member states. The economy is in bad shape, but there are no signs of worsening. Indeed, actual trends and expectations point to a possibility of slight recovery or, at least, to a continuation of stagnation. This might change if major deteriorations occur in the key trading partners, or in the case of severe mistakes in economic policy.

Levels of all forms of final demand, with the exception of exports, remain bellow pre-crisis levels, longer term dynamics varies but indicates that spending has strengthened. Expected spending for the next few months has not changed; export dynamics will be at the level of the euro area, which also applies for manufactured products. The weakest is the demand for services. In the coming months, one can expect stable growth in exports, a slightly higher dynamics of household spending on goods, more investment in construction, and continued weak spending on services.

October has not changed incumbent trends in international trade. They are not spectacular; surplus is partly due to the decline in domestic demand and stagnating imports, which characterizes trade relations in other EU states as well. Slovenia in October had a surplus in trade with EU member states and trade deficit with other countries which is unusual and probably unique.

In November, economic climate warmed slightly. The improvement was shaped by increased confidence in the manufacturing and service sectors. The state of orders in manufacturing is similar to the state in the EU28, the orders in construction, which had been decimated in Slovenia, are much better than in EU28. Pessimism prevails in retail trade, both in Slovenia and in the EU.

Fluctuations of industrial production around zero continue; in annual comparisons production declined while impulse trend reflects acceleration. The movements in the EU28 are as well vague, In October annual production rose slightly, compared to September it rose in eleven and fell in twelve member states for which data are available.

The value of construction works in October was higher than in September, and much higher than in October last year; impulse trend shows growth. Number of overnight stays in September was also higher than last year and there is an upward trend, both go on the account of foreign tourists, as there are less and less domestic tourists. Branches of transport, for which there are data, are in a good shape; public passenger road transport and air transport grew, there were more passengers at Brnik airport, the amount of reloaded goods in the port of Koper was for a third higher than last year.

The number of registered job seekers in November increased slightly, there were less new applicants than in October. Most of them were looking for a new job, because their temporary job expired. Among those, who left the employment offices, most found new jobs. Unemployment in the EU28 continues to grow, the most critical is the situation in the peripheral countries of the euro area.

Inflation continues to dwindle. In December, prices of goods and services fell, the latter a lot more. Prices fell in most product groups; mostly, due to seasonal sales, prices of clothing and footwear while prices of petroleum products and vegetables increased. Inflation, measured by the harmonized index of cost of living, has been reduced to the level in the euro area. Producer prices are slowing (or falling) even more than consumer prices. Prices of raw materials on the world markets fluctuate, while in the long term they decline. Price expectations in the next few months show no significant change in the dynamics.

Average wages increased markedly in October; the majority of the increase was non seasonal. Wages increased in most activities except in education, they increased most in the sector producing electricity, gas and steam. In manufacturing, the unit labor costs relative to the euro area continued to decline. In the public sector, unit labor costs stagnated at a level, which is about 6 percent lower than before the crisis and are therefore increasingly lagging behind by the appropriate unit labor costs in the euro area where they continue to steadily grow.

Government revenues decreased in November, more long-term dynamics also worsened. Domestic taxes on goods and services in declined sharply; appropriate long-term dynamics both of the value-added tax and excise duties decreased. Basic tax forms of direct taxes in November did not change significantly

In October, loans to corporations and households decreased. The monthly decline was much larger than before, therefore the longer term dynamics, which this year has already begun to settle, worsened considerably. The acceleration of the decline is limited primarily to corporations. A further fall in lending can be expected due to the closure of two banks, as other banks are not able to quickly take over their clients; they will stay without credit support. Total deposits have remained practically unchanged, longer term dynamics strengthened again. Strengthening has been driven by exceptional surplus in the current account, which is a source of noticeable growth in deposits of companies, as deposits of households continue to slowly diminish or stagnate. While lending interest rates for households are similar to the rates in the euro area, the borrowing rates for companies are markedly higher than in the euro area average, but at the same time lower than in countries that have received aid. One cannot expect that the recapitalization of banks will change anything, as long as the banks do not start to re-engage with their core business - credit intermediation. If the action of economic policy makers end with the recapitalization of banks (and reviewing credit files), the situation it will remain unaltered. In the periphery of the euro area where a comprehensive recapitalization of the banks took place credit dynamics deteriorated rather than improved.

The surplus in the current account was in October, slightly below the monthly 200-million surplus, created by the surplus in the accounts of goods and services and decreased by the deficit in the income account. This is also true for ten months, which was also created by a surplus on goods and services accounts and the deficit in the income account (slightly smaller than last year) and current transfers account (slightly higher than last year). The financial account reflects the current account flows, reduced liabilities and increased assets reached almost 3 billion euro; capital was flowing out through direct and other investments, but flowing in through portfolio investments. Gross and net debt of Slovenia is decreasing.

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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