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

Weak demand and insufficient financing hinder economic activity

Gospodarska gibanja 464

Total domestic consumption in October grew; also longer term dynamics improved. Households and investment spending increased, while government spending fell. The increases of exports halted. Insufficient demand continues to be one of the key reasons for the stagnation or decline in economic activity.

In November, foreign trade demonstrated two weaknesses: fall of exports and growth of trade deficit. In December foreign trade results improved again. However, Slovenia has not exceeded average performance of the EU member states in foreign trade. Exports alone could not compensate for declining domestic consumption and could not turn production into growth.

Economic climate stabilized due to very diverse results by industries: increased confidence in manufacturing with larger orders, decline of optimism in services, deterioration of confidence in construction and improvement in retail trade. In EU 28, economic climate in December compared to December 2012 improved mainly due to increased orders in construction, and improved expectations in retail trade and manufacturing.

Industrial production in November enhanced if compared to the previous year, while impulse trend turned down. In EU28, industrial production rose significantly on the year to year comparison. Monthly production in November rose in sixteen and fell in six states for which data are available. Large fluctuations from month to month do not exhibit well

defined trend. Growth in construction continued in November, number of tourists increased, as domestic tourists joined foreign tourists. The dynamics in the transport branches at the end of the year was stable.

Despite the increase of unemployment in December and January, a stabilization of the labor market is indicated. The increased number of job seekers was namely to a large extent a result of seasonal expiration of fixed-term job contracts. The number of newly registered job seekers was higher than in previous months but lesser than a year ago. The unemployment rate in the euro area remained unaltered, but it was higher than in 2012, while somewhat lower unemployment rate in the EU28 increased slightly in a year. Of 26.6 million unemployed in the EU28, 19.2 million are in the euro area; Austria remained the most successful country, the other side was shared by Spain and Greece.

Inflation slowed both in December and January. Too sluggish inflation in Slovenia is becoming even more problematic than in the euro area. Consumer prices fell, both indicators of longer-term growth also declined. The decrease was largely endogenous, a decline in growth of core inflation was virtually identical to the decline of measured inflation. Producer prices in December did not change, export price increases originated from a noticeable increase in the prices of products exported to countries outside the euro area, while producer prices for products sold in the euro area remained unaltered. Rapid reduction of price dynamics is surprising because price expectations have remained for some time almost unaltered. World commodity prices decreased in the past month, as well.

Average wages rose significantly in November; in the longer term, the increase was much smaller and long-term growth turned down. In the public sector, growth was below average, wages in narrow government even fell slightly. In most of the activities, the average wage was below the level in 2012. The reason for unit labor costs falling faster than wages is a much faster decline in the cost of other unit labor costs which were left behind the relevant labor costs in the euro area much more than unit labor costs of wages. In the public sector, other unit labor costs lagged behind pre-crisis period significantly more than in the business sector.

After a fall in November, public revenues in December rose noticeably; so did their long-term dynamics. Public revenues in the second half of 2013 were the same as in 2012, thus the entire gap was created in the first half of the year. There are two reasons for that; the base effect, that is, the decline, triggered by the ZUJF, and settlement of corporate income tax in 2013; tax revenue of the profits tax in April 2013 was, for example, negative. Domestic taxes on goods and services exhibited rapid growth in the second half of the year, while growth of direct taxes and other revenues stopped.

Credit support remains weak, contraction of loans in October and November due to the winding-up of two smaller banks, was in December followed by significant decline due to the transfer of loans to the “bad bank”. Lack of credits continues

to be one of the key obstacles for recovery of economic activity. The companies in the manufacturing sector, where demand restrictions are rapidly diminishing, do not have proper credit support. Situation for the companies in services is even worse; as lack of access to finance only increases the barriers arising from the lack of demand. After the change in September, total deposits of businesses and households began to shrink; while household deposits are decreasing slowly, changing dynamics of total deposits in the business sector resulted in fluctuations in total deposits. The implications of the autumn events in the banks on the banks’ liabilities will be seen after some months.

November’s surplus in current account was below average; however the current account balance in 2013 will exceed € 2 billion; there is an uncertainty due to unallocated net errors and omissions. October gross external debt exceeded 40 billion €, while net debt was at 12 billion €, both slowly 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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