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

Economic activity less and less linked to absence of credit assistance by banks

Gospodarska gibanja 467

Total domestic demand in February decreased seasonally while longer term dynamics increased substantially due to increased government spending and fixed capital formation. Households spending in February diminished as well, but the reduction was primarily seasonal and long-term growth improved markedly. Foreign demand continues to grow. Expected spending in May improved a bit more than in previous months, especially the expected spending on goods and export demand. After a long time, there was a noticeable speed up in the expected consumption of services which however lags behind the average.

In early 2014, Slovenia continued to make above-average external trade performance. In March and in the first quarter, trade balance was positive due to growth in exports and a slowdown in imports.

In April, economic climate became slightly warmer. Confidence in the manufacturing sector was the same as before but much stronger than a year ago and slightly above the long-term average. Climate in the service sector was also warmer, but below last year and long-term average. In the construction sector confidence slipped slightly, but remained higher than last year and above the long-term average. Confidence in the retail sector remained unaltered but improved compared to April 2013; low demand remained the major obstacle for recovery. The economic climate in the whole EU in April compared with April 2013 improved.

Industrial production compared to a last year recovered; mining activity fell sharply, manufacturing production increased considerably. Industrial production in  the EU28 declined somewhat. On yearly comparison, production decreased within the euro area and increased outside the euro area.

The value of construction works was increasing rapidly, although the number of construction hours stagnated. Tourism performed worse. The total number of overnight stays decreased significantly, and also foreign tourists contributed to the fall. The performance of transport activity is satisfactory, particularly in air and airport traffic and loading activity in the Port of Koper.

In the labor market, the situation recovered again. The number of job seekers decreased; outflows from unemployment exceeded inflows; most of those who entered the employment offices lost their jobs for a certain time period, among those leaving, most got new jobs. The growth in unemployment in EU stopped; four fifths of the unemployed are in the countries with euro, by far the highest unemployment rates are in the countries which were “helped” by troika.

Inflation continues to slow down towards deflation; the pace of the slowdown is dictated by energy prices. In April, the cost of living rose, but a long-term dynamics decreased and current growth became even more negative. Producer prices fell in April, longer term dynamics is declining much faster than the dynamics of the cost of living index. Price expectations strengthened, but do not indicate any major changes; the industrial producer price expectations are on the low long-term average. Raw material prices increased in the last month, but remained low.

Wage dynamics in the public sector lags behind the economy and the euro zone. Average wages rose in March, long-term dynamics slowed markedly. In the public sector, the average salary in March rose slightly more than in the entire economy; in the longer term, however, the fastest growth of average wages was in manufacturing sector, while the biggest decrease was in education. While a unit wage costs in manufacturing are growing as in the euro area, a unit wage costs in the services sector is increasingly lagging behind.

General government revenues in April surged by over 20%. Most of this increase was due to a strong season, but a longer term dynamics increased considerably, as well. In particular, direct taxes and other revenues increased strongly; partly as the result of last year’s low base. Also domestic taxes on goods and services increased in April, but retained negative trend dynamics. The majority of the fall is due to much lower yields from excise taxes; these were in April for a third lower than last year, and April’s increase in value added tax could not compensate for the fall in excise taxes.

Due to the large seasonal fluctuations, shifts in the timing of payments, and economic policy interventions, actual trend achievements in government revenues since the beginning of the crisis are hard to disclose by the underlying data. The largest deterioration in fiscal revenues at the beginning of the crisis was reached in the first quarter of 2010, when total government revenues were about 15% lower than before the crisis. The fall was therefore much greater than the contraction of economic activity. Government revenues then recovered, and drastic shrinkage of the tax return coincided with the introduction of a ZUJF ; then, government revenues fell even more than in the middle of the crisis. Phases of improvement or deterioration in yields are equal in both groups of taxes, except that the tax yield from direct taxes and other revenues has a declining trend, the revenues of domestic taxes on goods and services have an increasing trend.

Total lending to companies and households continued to decline in March. After the transfer of bad assets to the bad bank, when the bank loans were noticeably reduced, their dynamics has not altered. Changes in economic activity have less and less in common with the banking activity. During acceleration in economic activity after the transfer of bad loans to the bad bank, the annual growth rate of loans stabilized at negative values. Total deposits of enterprises and households increased in March. ECB interest rates have not changed. Interbank interest rates in March and April increased slightly and there was no change in the retail interest rates in the last months. After the recapitalization of banks, deposit interest rates fell below the level of interest rates in the EU, which is not surprising, as the banks are after December 2013, full of liquidity and free resources (capital).

A large surplus in the current account in March brought quarterly surplus close to a very high surplus last year. The surplus throughout the first quarter is the sum of surpluses in goods and services, a deficit in net factor incomes, and outflows of current transfers. The financial account reflects the deleveraging of the private sector and public borrowing. Due to February’s additional borrowing by the state foreign debt increased but eliminated the liquidity problems for this year. Because of the additional borrowing in order to protect against external financial shocks, the share of public sector in total external debt rose to more than half.

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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