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

How long will we be able to rely on exports only

Gospodarska gibanja 480


Large swings in exports remain a key risk factor for performance of the Slovenian economy which continues to be highly dependent on export demand. The recovery in domestic spending components is, despite recent acceleration of households spending, government spending and investment, slow and cumulatively very modest. Without changes in economic policy it is not possible to expect that growth in Slovenia would markedly accelerate relative to the euro area. The key to growth would be increased government spending and/or increased credits, at least to households. However, there is no indication that anything will change.

In July, growth of exports and imports slowed while trade surplus increased further, especially at the expense of positive balance in trade outside the EU. Terms of trade were in the second quarter almost 2% more favorable than in the same period last year, which is significantly better than in the rest of the EU28. By the dynamics and balance of exports and imports Slovenia has been at the average level of EU28.

The business climate improved at the end of the summer due to increased confidence in the manufacturing sector, stabilization of confidence in the services sector, and greater confidence in construction and retail trade. Economic sentiments in August compared with August last year improved throughout the EU28: due to more orders in the construction sector, and improving expectations in retail trade and in manufacturing.

Industrial production in July recovered, the trend is rising. Both, mining and processing activities contributed. Industrial production in the EU weakened in June, the differences between states remain high, this time the best performers were Netherlands and Denmark, the worst Portugal and Croatia.

The value of finished construction works declined. Number of tourist overnight stays increased in early summer; the performance was helped by domestic tourists.  Air transport is constantly growing, and urban transport is remaining stable, transportation in the Port of Koper is increasing.

The situation nn the labor market has improved; the number of active persons and employees is increasing, the number of jobseekers decreasing. The labor market is becoming increasingly precarious; inflow of to employment offices is more and more dominated  by inflows of people who lost their terminated jobs, outflows by those who get new precarious employments.

Long-term dynamics of consumer prices in August fell for the twelfth consecutive month.  Prices of goods decrease, prices of services grow very slowly. The cost of living index was in August pushed upward by prices of electricity and holiday packages while they were pushed downwards by prices of petroleum products and seasonal vegetables. In the euro area, retail sale prices barely move. Industrial producer prices continue to fluctuate around zero. Price expectations indicate no major changes in the near future, they suggest that deflation might intensify. World commodity prices continue to fall.

Wages increased, their long-term dynamics turned up. In June, they increased the most in agriculture, manufacturing and electricity production, while they decreased in transport and financial activities. Wages in general government sector fell, the most in health care, while in education they rose. In the longer run, wages in the government sector and in the education are slowly growing, in health care they are falling.

Increased wages in the business sector are reflected in the dynamics of unit labor costs which accelerated in market activities while the dynamics in the non-market services lagged behind the pace in the euro area.

The dynamics of general government revenue remains favorable. Until August, public revenues exceeded last year revenues for 293 million euro. In August taxes on production and imports fell; the bulk of the reduction was caused by value added tax, while a strong drop in oil prices allowed an increase in excise duties. Direct taxes and other revenues grew as well.

The revenue of taxes on production almost reached the corresponding revenue in the euro area. A break occurred after the cessation of austerity measures which additionally compressed consumption of the households, and with the increase of value added tax rate. An even greater, though short lasting effects had the austerity measures on the social contributions which but soon returned to a level at which they have fluctuated since the beginning of the crisis. The revenues from taxes on income and wealth were even more affected by the crisis and by the austerity policy.

Loans continue to hinder growth. In July, both loans to companies and households were reduced. The dynamics of the loans to enterprises significantly lags behind the dynamics of the loans in the euro area, although economic growth in Slovenia is faster. Insufficient credit support to enterprises continues to inhibit economic activity, although demand for credits by companies is large enough. The indebtedness of the business companies fell below the average indebtedness in the euro area, however the regulator and the banks do not give up in braking the credit growth. While in the euro area banks have been reducing credit requirements since the beginning of 2014, in Slovenia, the requirements boosted at the beginning of this year.  Deposits continue to increase due to large surpluses in transactions with the rest of the world which cause large net inflows in the accounts of enterprises. There have been no changes in the deposit and lending interest rates.

The surplus of the current account is steadily increasing; after seven months, it has exceeded one and a half billion euro, the surplus in the goods account exceeded one billion, and on the account of services 1.1 billion. Sales of companies to foreigners are steadily increasing the deficit at the account of primary and secondary income. Thus, the outflow through the capital account contributed 0.6 billion euro to the deficit. The treasury contributed 0.2 billion euro to the deficit on the account of secondary incomes. The state on the financial account has been much calmer than last year. In July, liabilities increased mainly due to preventive borrowing by the government. Gross and net external debts are slowly declining, yields on Slovenian ten-year bonds fluctuate at the level of corresponding Italian and Spanish bonds.

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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