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

Better than expected

Gospodarska gibanja 472


Domestic consumption strongly oscillated from July to September but the total change was rather small. All components of domestic demand rose in September; due to deflation is the real growth of domestic demand for about a percentage point higher than shown by the nominal value. Constraints in demand are slowly easing, most notably in the manufacturing sector. They decreased in construction, but remained considerable in service sectors. Insufficient demand distresses business services sectors also in the euro area. Expected demand has stabilized in all basic segments of the economy. In September, there was a marked increase in foreign trade, in exports stronger than in imports (the highest level of exports of goods so far was achieved), which doubled the former positive balance. Trade surplus is becoming a regular and significant contributor to GDP growth.

The economic climate in October was also favorable, the value of the indicator is on its highest level since September 2008. Confidence in the manufacturing sector increased, the prospects remain good. Confidence in the service sectors improved, confidence and expectations in the construction industry improved, as well. While confidence in the retail trade increased, expected sales worsened. The economic climate in the EU28 in October compared to October last year improved a little.

Industrial production in September compared to production last year increased and it is also currently increasing. Production in September rose in both the euro area and EU28; the fastest in Croatia and in the Czech Republic, while it declined most in Denmark and in Portugal. The value of construction works in September was lower than in August, but much larger than a year before and the trend has been increasing rapidly. The total number of overnight tourist stays decreased in late summer, again at the expense of decreasing number of domestic tourists. Among transport sectors air and road passenger transport were successful, the transshipment in Koper was slightly lower than in September last year.

The deterioration in the labor market, which is reflected in the increasing number of job seekers, is mainly seasonal, since the numbers of economically active population and employed in companies have increased. In October, the number of job seekers increased primarily due to first-time jobseekers. The unemployment rate in the euro area and the EU28 compared with last year declined slightly; Austria and Germany with about five per cent rate continue to be the most successful, acute  are the problems in Spain and Greece, where a quarter of the working population is unemployed.

Prices continue to decline, the prices of services more than prices of goods. Changes in groups reflect the season; prices are pushed up by the changes in collections of clothing and footwear, while food and holidays in packages are pushing prices downward. The EU is getting nearer to general deflation, which in some countries has exceeded 1 percent. Industrial producer prices have stagnated in October; the prices of products for exports rose slightly Price expectations  do not indicate significant changes; expected producer prices stagnate around the long-term average, expected prices in retail trade are slowing. World commodity prices in the last month (until mid-November) increased rapidly, with the exception of crude oil.

Trend in wage growth remains unaltered, divergences in sectors dynamics decreased with the exception of mining. In the public sector earnings increased in education and administration, and declined in health and social care, cultural and entertainment activities. A more long-term increase was only in administration and defense, there has been no increase whatsoever in the rest of public sector.

The differences in the dynamics of wages generally do not imply the differences in the unit labor costs. These are also the result of business performance, and dynamics of demand and market structure. In the market services sector in which the sufficiency of demand lags far behind normal values, labor costs are on pre-crisis levels, in the manufacturing sector, whence most of the exports are, the dynamics of unit labor costs accompanies the dynamics in the euro area.

General government revenues remained unaltered in October; cumulative revenues in ten months of this year considerably exceeded last year revenues. Smaller October reduction of direct taxes is only seasonal, trend, together with social security contributions has been strongly increasing. Domestic taxes on goods and services rose in October, but their more long-term dynamics decreased, which is due to the time shift in payments. Excise duties in October decreased greatly, but the reduction was due to a major shift of payments from August to September.

In the first nine months after the withdrawal of bad assets from banks' balance sheets the loans to private non-financial units decreased by more than 9 percent, which is much faster than in the euro area and than before the start of the rehabilitation of banks. Deposits of enterprises and households decreased, but their long-term dynamics, despite the decline in lending, remains positive, which diminishes the importance of the lack of credit supply. Interest rates on the interbank market continued to fall, reducing also the borrowing rates. This suggests that banks are gradually realizing that by avoiding the risk they are slowly losing customers. Deposit interest rates have remained almost unchanged.

The surplus in merchandise trade contributed most to the record surplus in the current account; this year's cumulative surplus is approaching last year's 6 percentage share of GDP. The current account surplus has been created by a surplus in trade in goods and trade in services, and it has been damaged by the deficits in incomes and current transfers. Capital and financial accounts indicate large outflow of capital and changes in the structure of financial position. The inflow enters through direct investment and portfolio investment (government bonds) accounts, the outflow departs through other investments. Gross and net external debt of Slovenia is only slowly changing; the proportion of the public sector is constantly increasing.

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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