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

Did the last quarter bring the change or just a pause in painting doomsday scenarios?

Gospodarska gibanja 465

Newly published data suggest that gross domestic product started the current rise already in the first quarter of 2013. Since then the rise was faster than in the euro area, especially in the second half of last year. It indicates that the classification of Slovenia at the bottom of the EU was a kind of politically motivated blackmail by the European Commission; even the previous data did not justify predictions of the decrease of GDP in 2014.

Exports remained the driving force of growth in 2013, while a turnaround in the growth is due to changes in investment and household spending, which annual dynamics turned positive only at the end of 2013. A more detailed monthly dynamics shows that their growth is unstable, the growth of exports fluctuates from time to time, as well. Expectations indicate a possibility of subtle improvement of the dynamics in the next few months. Expected consumption of services remains well below the long term average values, the share of companies in service sector, which expect the decrease of service consumption, exceeds the share of companies, which expect its increase.

Favourable foreign trade trends are continuing in January, but they are different from normal; namely in January, Slovenia had trade surplus with EU Member States and trade deficit with other countries. Slovenia was both, in exports and trade balance above the average of EU28.

Economic sentiment in February stabilized at the January level, it is better than a year ago, but still lags behind the longer term average. Optimism prevails in manufacturing, while pessimism predominates in services. Confidence in the construction sector has rebounded somewhat, expectations for the next three months are much better. Compared to January, confidence deteriorated in the retail trade as well, but remained better than last year and at the long-term average; in the coming months improvement is expected. In EU28, economic climate in a year improved, which applies to the construction, retail trade, and manufacturing industry. Business optimism has also strengthened.

Industrial production and manufacturing activities in the yearly comparisons increased strongly; growth was halted in December. In January compared to December, industrial production rose slightly in the EU28, it did not grow in the euro area. In a year, it increased in both; the euro area and the EU28. Large monthly fluctuations across countries continued in January.

The value of construction works in January was a fifth higher than in December, and two fifths higher than a year ago. Number of overnight tourist stays in the year increased slightly; the tribute for the increase goes to foreign tourists, while in both groups, the growth stopped at the end of the year. After a long time there was a stop on the year to year growth of urban public transport. Air and airport traffic improved in January, even better was the transport of goods in the port of Koper.

Labour market situation has (temporarily?) stabilized, although the number of employed persons and employees continued to steadily decrease. The number of registered job-seekers after January’s rise stagnated in February at well above level of last year; the inflow and outflow of jobseekers is quite uniform; large inflow is due to termination of employment for a definite period of time, while in outflow most find new employment or self-employment. In January, the unemployment rate in the euro area remained unaltered, it decreased in the whole EU; the lowest levels have continued to be in Austria and Germany, the highest in Spain and Greece.

The slowdown in prices continued in February. Prices of goods and services increased equally, more long-term annual growth is but quite different; prices of goods began to dwindle in July last year, prices of service in October. A major contribution to easing of inflation at the end of 2013 came from accelerated slowdown in energy prices. Price growth, which is comparable between EU countries shows that due to the February decline, inflation in Slovenia lags behind the average of the euro area and the EU. In January, producer prices remained unaltered, a longer-term dynamics remained very weak or negative. In January, current growth of producers prices differed only marginally in different markets; goods for euro markets are a little more expensive, goods for other export markets less expensive, the prices of goods for domestic market remained unchanged. Price expectations weakened in February; expected prices are to fall in services, price expectations of providers of goods did not change.

December’s salaries are considerably lower than in November, in December 2013, the average wage fell noticeably. Longer-term dynamics strengthened. The decline in December was largely seasonal. Salaries in December decreased in most business activities, the largest was the fall in manufacturing. Among the public sectors activities wages in the health sector increased, they stagnated in education and fell in a narrower government; everywhere they were lower than the corresponding wages in December 2012.

Longer term growth in public revenues is increasing, but fluctuations between months are enormous; stemming from seasonal fluctuations, changes in the tax base, or arrangements for tax collecting, particularly in the value added tax or settlement of profit tax. While at the end of 2013, longer term dynamics was worsening, it accelerated in the first two months of 2014. Although revenues declined seasonally, they indicate that long-term growth strengthened. The revenues of direct taxes and other public revenues were lower than last quarter, but their annual growth was significantly higher. The dynamics of domestic taxes on goods and services accelerated sharply after the second quarter of 2013, and continued in the first two months of this year, albeit a little less intense. Growth of domestic taxes on goods and services in the second half of 2013 is due to the increase in value added tax rate and the acceleration of economic activity.

Loans in January fell again, the reduction was slightly higher than before the December transfer of bad loans to DUTB, and annual rate remained virtually the same as after the transfer. Since it is not clear whether the transfer was already completed, it is not possible to determine whether the credit support continues to decline according to the dynamics prior to the transfer, even though the capital adequacy of banks increased significantly, while final consumption of the households improved. Falling loans would be understandable if the transfer was not completed in December, or if they conveyed corporate loans which were normally serviced. Such a transfer would, considering the Irish experience, cause a reduction in credit support of other banks. Total deposits increased in January, but their level is lower than a year ago. Longer term dynamics of corporate deposits, despite the decline in loans, increased due to the surplus in the current account, while deposits of households are shrinking due to the contraction of credits to households and contraction of their incomes.

Last year’s annual surplus of the current account amounting to 7 percent of GDP was at a record level, which was a key contribution to GDP growth in the fourth quarter and lower GDP decline throughout 2013. Capital account reflects the deleveraging of Slovenia; reduction of obligation liabilities exceeded net purchases of foreign securities. Foreign direct investments were negative, negative flow was also in financial derivatives. Also in 2014, the positive balance in the current account continued. January surplus increased thanks to trade flows, as the surplus in services was less than in the previous year, and the net outflow of factor income and current transfers were larger. Net external debt at the end of 2013 was the lowest since December 2008, gross debt fell bellow 40 billion €, the public and public guaranteed share of debt exceeds half of it.

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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