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

Will private domestic demand assist foreign demand?

Gospodarska gibanja 477


Data on GDP and its components in the first quarter are not yet available, provisional data on aggregate domestic spending on goods and services in February indicate stagnation rather than acceleration of its dynamics. GDP growth continued to be maintained by foreign demand; rather poor domestic demand in the first two months was mainly due to a decline in material consumption of general government while bigger drop was prevented by an increase in consumption of the population. The government is obviously not able to actively intervene in the promotion of economic activity.

In March, there was a positive jump in foreign trade; both, volume and positive trade balances increased. In comparison with other EU28 states, Slovenia reached above-average results.

The economic climate cooled slightly in April due to lower confidence in manufacturing and construction sectors. Orders in the manufacturing sector, however and after many years exceeded their "normal" level, i.e. the point at which the percentage of companies which judge to have enough orders is the same as the percentage of companies judging that they have too little orders. Decimated construction was close to such a point in the middle of last year, but at the turn of the year companies with too little orders prevailed. Climate in the services sector and confidence in the retail trade repaired. In the EU28, the economic climate in April compared with April last year mostly improved while overall business optimism declined slightly.

Consumers were in April only slightly less optimistic than in March, but continued to be much more optimistic than a year ago. The assessment of their own financial situation is strong, and their views on general economic situation are very optimistic. Worse than in March and better than a year ago is assessing the suitability of major purchases, but they are more than in March willing to make major purchases. The assessment of adequacy of saving was reduced. However, more consumers than last year, but less than in March intend to save, and more than a year ago, believe that their financial situation is proper.

Industrial production in the year to year comparison increased, impulse trend points to a continued growth. In March, industrial production grew also in the EU28 and in the euro area. Fluctuations between the countries remain high.

The value of finished construction products in February was higher than in January, but the impulse trend indicates a jam. The number of overnight tourists stays increased strongly due to the increased number of both, foreign and domestic tourists. There were more passengers in the air transportation but less passengers than the year before in Brnik airport and there was less transfer of cargo in Koper.

The situation in the labor market improved, there was an increase in the number of economically active population, and more were employed in companies and by individuals. The number of job seekers is declining; fewer of them come to the employment office, most of them because they have ceased to work for a specified time; an increasing number of those who leave employment offices finds new precarious type of jobs or self-employment, which is increasingly a common form of employment. The unemployment rate in the EU and in the euro area decreased below 10 percent, Germany has the lowest rate, Spain and Greece have the highest rates.

Deflation in Slovenia remains somewhat more persistent than in the entire euro area. Retail prices in April rose, but lagged behind the prices in December and prices in April last year. Prices of goods increased, but remained lower than in December and in March last year. The opposite happened in services, their prices fell in April, were equal to prices in December and higher than in April last year. Price changes by the groups were small; most noticeable were more expensive clothes and shoes, while in a year, prices of alcoholic beverages and tobacco increased most and transport prices decreased most. Among twelve groups prices rose in five, and fell in seven. Industrial prices were higher in March than in February, they were equal to prices in March last year.

February's average gross and net earnings were lower than in January, while average hourly wages were higher. In February, the highest monthly net earnings were in the electricity, gas and steam production, followed by earnings in financial and insurance services, in the information and communication activities, and in mining. Those working in a variety of business activities earned less than 700 euro. Except in the manufacturing sector net monthly salary was everywhere lower in February than in January. In a year, earnings fell in ten and rose in nine activities. The order of net hourly earnings was slightly different on the top, employed in hotels and restaurants and in other activities earned less than 5 euro an hour. In a year, net wages increased in eleven activities, in nine less than one  percent, and decreased in eight.

The data do not support the "truism" spread by foreign and domestic preachers of "structural reforms" according to which the problems in Slovenian economy are caused by excessive tax burden on labor. The increase in labor costs in the economy was similar to the European average, labor costs in the public sector remained far behind.

April was good for filling public purses and greatly improved the cumulative result in four months in which the amount of collected taxes was for 246 million euro larger than last year. In April, the inflows of money into all the public purses exceeded those in March or April of last year; revenue from the tax on the profits of companies more than doubled. Developments in revenues in four months have been favorable in all the important direct taxes and contributions. Even more than in indirect taxes, the economic recovery at the turn of the year was reflected in indirect taxes. Total revenues collected for social security, have stabilized at 2.7 per cent growth.

Data on expenditure of public funds are delayed. In the first two months, expenditures exceeded revenues by 433 million euro, primary deficit was 129 million euro; less than 5 percent of expenditures were used for investment. In the first quarter of the year, payments to EU were 37 million euro less than receipts from EU.

Loans to non financial corporations and population are shrinking, while deposits, despite the interest rate near 0, are increasing. The ratio of loans to non-financial corporations and households and their deposits shrunk to 0.98 in March. Answers to the question on the reasons and reasonableness of a drastic reduction activities of banks and the role of BS and the owner of banks-government is apparently hidden in the commitments to sell the banks and wishes to transfer them to becoming second-rate local branches. The deposit interest rates are approaching zero, while deposits grow due to the surplus in the balance of payments and improved economic situation. The lending rates are also falling but they remain high.

February's balance of current account is "seasonally" negative; in two months it remains positive and twice higher than in the same period of 2014. The current account surplus is the result of goods and services surplus and deficit of primary incomes and current transfers. The financial account shows an increase in liabilities or decrease in claims; there is net outflow via direct investment, an increase in liabilities through the account of portfolio investment, and reduced liabilities through the account of other investments. Gross and net external debt of Slovenia continued to rise. Time of falling yields on government bonds appeared to come to an end, yields are rising elsewhere.




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.


    Subscribe to a magazine and get free access to articles.


User login

Enter your username and password here in order to log in on the website:

Have you forgotten your password? Subscribe!