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

Let allow the economy to recover

Gospodarska gibanja 475


Yearly growth of GDP in the fourth quarter of 2014 was lower than it was in the third, but mainly due to the events in the previous year. GDP growth indicates that economic policy failed to get economy on the knees. A much larger drop in GDP in Slovenia in 2009 from the drop in the EU28 was unavoidable, while domestic economic policies, addicted by "savings hysteria" can be at least partly blamed for Slovenia's lagging behind between mid 2011 and mid 2013. When these policies subsided, the dynamics of Slovenia's GDP began to overcome the dynamics in the EU28. Due to the lagging of GDP behind the highest previously achieved level Slovenia in six years "lost" about 47 percent of one year's GDP, and half of this loss can be attributed to inappropriate economic policies. The most critical was the fall in investment demand, while foreign demand has during the crisis prevented an even greater contraction in GDP. Good results at the end of last year are mainly due to foreign demand,  domestic demand inhibited rather than contributed to GDP growth.

Unprecedented increase in exports in December enabled last year's record full-year trade surplus in the excess of 1% of GDP. Slovenian exports had the fourth fastest growth in the EU, import growth was on the average, by the difference between the growth rate of imports and exports Slovenia was the third; the country was one of the eleven EU member states with a positive balance of trade.

Economic climate improved in February; this was mainly created by increased confidence in the service and manufacturing industries. Optimism decreased in retail trade, while confidence in construction sector recovered. General economic climate in the EU28 warmed slightly. Consumers also in February remained less pessimistic than a year ago, thus one can hope that economic policy will not create unnecessary pessimism and obstacles which would endanger newly born optimism.

Industrial production, which is largely determined by manufacturing activity, improved in December, while mining activity was drastically reduced. In November 2014, industrial production in the EU28 improved slightly, while it stagnated in the euro area.

The value of construction works in December 2014 was lower than in November, but it increased in comparison with December 2013; the number of hours worked was growing. In December, annual growth and the impulse trend of the number of overnight stays increased; merit for that have mainly foreign guests. Air transport and urban transport enhanced, the traffic in port Koper increased significantly.

Labor market situation has deteriorated slightly, but one can consider it mainly as normal seasonal fluctuations. The number of job seekers, which increased in January 2015, fell slightly in February. The structure of entries and exits to the employment offices is increasingly associated with precarious arrangements; most of the newly reported jobseekers are there because their temporary jobs expired, most of those who exit employment offices get a new precarious form of employment or  "self-employment", which is often a hidden unemployment. EU unemployment rate wall above Slovenian level is slowly decreasing, the difference between successful (Austria and Germany) and failed (Spain and Greece) countries remained unaltered.

February mitigated yearly deflation. Faster growth or slower decline in prices of services than prices of goods, which is typical for the annual and ten-year price dynamics, continued. Within a year, the prices of alcoholic beverages and tobacco products increased most, transport prices fell most. In February, prices of communication services increased most. The majority of long-term shifts in relative prices occurred after the introduction of the euro. They were strongly influenced by foreign competition and tax policy, in particular excise taxes. In the last decade, the prices of alcoholic beverages and tobacco increased most, while clothing and footwear became even absolutely cheaper due to an increase in foreign competition. Technological development and competition made communication services cheaper. Harmonized index of retail prices, which enables comparison of inflation in the EU countries, exhibits continued deflation which is mainly due to a significant drop in energy prices. The stagnation of industrial prices in January continued, but the impulse trend shows a slight increase which might lead to a gradual increase in the annual rates.

The average gross salary in December was much lower than in November, but the reduction is mainly seasonal; annual wage dynamics, like in all other months of the last year, remained positive. Larger than in the monthly wages were the arrears of wages for a working hour; for the same monthly salary it was necessary to work longer hours.

Labor costs data reject the "self-evidence" according to which the non-commercial (public) sector flourishes at the expense of the commercial sector: labor costs in the public sector in the period of the crisis were reduced more than in the commercial (private) sector, in which labor costs tracked labor costs dynamics in the EU economy; labor costs in the public sector in Slovenia lagged behind the labor costs dynamics in the public sector of the EU. Comparisons of the shares of labor and capital in GDP indicate that the prevalent burden of the crisis was in the new member states and the southern periphery of EU carried by workers.

In January 2015, all public purses collected less money than in December and only a little more than in January 2014. The main reason for a modest result were lower contributions to health insurance fund. Revenues of indirect taxes were much better. Total revenues for social security were lower than a year earlier, mainly due to the decline in revenues of health insurance fund. The budget deficit last year amounted to 3.3, and primary deficit to 0.5 percent of GDP. Very successful was drawing money from the EU sources; last year's net inflow amounted to 1.71 percent of GDP. Less than half of the new indebtedness was used to repay debts, more than half of net borrowing was used to increase the financial resources of the country.

In December 2014, bank credits continued to decrease, while deposits increased. Interest rates in the money market are close to zero, the borrowing rate for new loans to non-financial corporations are slowly decreasing, deposit interest rates that are low, were decreasing faster. But the volume of new loans to non-financial corporations and households is small, new loans to non-financial corporations with a maturity of over one year and deposits for more than two years have become exotics.

For the first time after 2005 were bank deposits greater than loans, the ratio of loans to GDP has returned to the level of 2005, when mindless gambling and its financing had begun. Has the crediting of the non-financial sector and households returned to the "normal" levels? Successful functioning of the economy and at the same time drastically reduced activities of banks, which continues despite the transfer of bad loans on DUTB, imposes at least two questions; what will banks do and how will they survive,  and how the economy is dealing with lack of crediting.

The surplus in the balance of payments in 2014 was a record, exceeding 6% of GDP. It was created by an exceptional surplus on the account of goods, and corrupted by a greater deficit in the income account. The numbers on the financial accounts reflect the structure of deleveraging of Slovenia; capital flowing in through direct investment and portfolio investment, and flowing out via other investments. The gross external debt is becoming less private and more and more public debt. Net external debt in December 2014 fell to 10.8 billion € or 29 percent of GDP. Low yield on Slovenian government bonds indicates a favorable assessment of the economic situation abroad.



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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