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

Macroeconomic "Significance" of the Bonuses to Salaries

Gospodarska gibanja 484


Expectations continue to slowly but steadily reinforce; it seems, that in the coming months, all components of spending are likely to strengthen. The weakest are signs of acceleration in construction. In the service and manufacturing sector, expectations are beyond long-term average and are being, slowly, intensified. Expectations of households show a steady rise in their intentions for major purchases. December, when expectations have already reached the level before the crisis, was followed by January's drop; it is probably a one-off effect on the news and statements without significant importance for economic developments. Thus, changing ratings on the dynamics of household consumption is not yet possible.

Average monthly exports exceed 2 billion €; foreign trade results are favorable, partly due to the drop of oil prices.

In January, economic climate cooled. The deterioration was mostly influenced by the fall in consumer confidence and confidence in the manufacturing sector. The confidence and expectations in the construction sector dropped as well, while the confidence in retail trade improved. In the EU, the economic climate in January 2016 compared to the same period last year improved slightly, but also there it was somewhat spoiled by the confidence and expectation in construction, manufacturing and retail trade.

Industrial production in the year to year comparison recovered strongly, the trend is growing. In November compared to October, industrial production in the EU28 and in the euro area declined, but it was larger than in November 2014.

The value of construction works in November 2015 was considerably higher than in October and also higher than in November 2014. Total number of tourist overnight stays in late fall increased slightly, but with the decreasing impulse trend. This time, the increase was due to domestic visitors, whose number was growing, while the number of foreign tourists decreased and the trend was declining. Transportation activity is in good shape. The number of passengers and passenger kilometers in the air transportation  grew, which is the case also with the number of passengers in urban transportation; in a year, shipping in the Port of Koper increased substantially.

The labor market situation has not changed much; in a year, the number of labor force decreased; the numbers of economically active, employed by legal entities, and self-employed increased slightly, while the number of employed in small businesses decreased. In January, there was an increase in the number of job seekers, but it was lower than in January last year. Among the newly registered job seekers with the employment offices, those who lost temporary jobs prevailed, among those leaving employment offices, most found new jobs. Unemployment rates in the euro area are slowly decreasing, the fall of unemployment rates across the EU28 is slightly faster. The lowest unemployment rates are in Germany and the Czech Republic, the highest in Spain and Greece.

The costs of living in December fell while their long-term dynamics increased; unlike in previous months, both, prices of goods and services declined, but in the longer term, the dynamics continue to be a weaker in prices of goods. The price reduction in December was mainly due to sales of clothing and footwear and lower price of oil products.

Slovenia continues to stay at the bottom of price growth in the EU. The harmonized index of costs of living in December and the year to year comparison declined while in the euro area it stagnated and increased in a year to year comparison. According to provisional estimates longer term price growth increased in January. Also in the euro area, the decline in prices of goods exceeds the decline in prices of services. However, deflation is milder than in Slovenia.  The exceptions are energy prices which are in the euro area falling faster than in Slovenia.

Industrial producers prices in December fell, they fell also in the whole year; prices were falling throughout the final demand structure, only prices of investment goods stagnated. Industrial producers         prices were falling also regarding the structure of the market (export, the euro, the domestic market) both in the short and in the long run. The ECB obviously cannot keep prices at the stagnating level, let alone at the target level of 2 per cent; occasional subtle turning upward trend is a result of fluctuations in the dynamics of world commodity prices. As economic agents do not believe in the ability of the ECB to deter deflation, the price expectations continue to deteriorate.

Average salaries have increased considerably in November but at the expense of the increased number of hours worked; gross earnings per hour in the interim comparisons even declined. Salaries in general government grew less than in the private sector, notably in the administration, much less in education and health care. Very modest changes in salaries in the government sector were accompanied by bonuses, which upset Slovenian public. However, since the beginning of the crisis, the relationship between bonuses and total remuneration of employees in the government sector changed very little. By the way, wage supplements of public sector employees in Slovenia are between the lowest in the EU, and in three countries with lower supplements systemic stimulation is higher than in Slovenia. Four activities with the smallest share of supplements belong to the public sector: education, health care, cultural activities and administration. Education, which has been already a few months in the headlines of the media and politics, has far the smallest share of supplements on regular salaries. Nevertheless, the wage law of 2008 with all the problems and crises, which has created so far, remains sacrosanct reference ideal situation! While wage supplements in the public sector are the prime topic for political and media show business, they are economically irrelevant.

Tax revenues were solid also the end of the year. They rose also in December but less than they would grow seasonally, thus, the long-term dynamics declined. However, tax revenues in the fourth quarter exceeded revenues in the third quarter, as well as revenues in the last quarter of 2014. Direct taxes and other revenues increased in December, but their long-term dynamics was lower than in November. Domestic taxes on goods and services in December declined significantly but in the whole fourth quarter revenues of major taxes were abundant with only exemption being the contraction of  value added tax on imports.

In 2015 and 2014, government revenues increased significantly. Despite such favorable dynamics in the last two years, the level of most taxes remains far below the level in the EU, and of some taxes also below the level at the beginning of the crisis. Income taxes even by the end of 2015 did not reach the level before the implementation of ZUJF (Act on balancing public financing), which reduced income taxes almost as much as the financial crisis. Slovenian post-crisis backlog of income taxes behind income taxes in the EU is huge. Also social security contributions were badly affected by ZUJF, but their recovery was faster. At the end of 2015, they already exceeded the value before the crisis, but the post-crisis gap between Slovenia and the EU remained large. Only taxes on production have about the same pace and level as in the EU.

Total loans to businesses and households shrank in December and were lower than in December 2014. The contraction is the result of a reduction in loans to non financial companies while loans to households have virtually stagnated. Throughout the year, loans to companies fell by 10%, while in the euro area loans to companies stagnated. The contraction of credits has less and less to do with the quality of loans, constantly mentioned by the regulator. This is confirmed by full-year dynamics of loans to households; in a year, they increased by one percent, half as much as in the euro area, although the population of Slovenia is the least indebted. Total deposits of companies and households  increased markedly in December; the deposits of companies noticeably faster.

The effects of the compression of bank loans by tightened credit standards are well illustrated by loans/deposits ratio. The net financial position of companies has been improving systematically and rapidly, that of households has stagnated at a level that is 30% better than in the euro area. In mid-2015, the net financial position of companies in Slovenia became better than in the euro area. Therefore, we can just repeat the question, how will banks with such deposits dynamics and regulatory credit tightening survive, as also non-interest incomes depend on the business connections of banks, particularly shrinking credits.

Interest rates altered only slightly; passive interest rates remained unaltered and the same as in the euro area; active interest rates fell slightly for housing loans to households and grew for loans to non-financial corporations.

Average monthly surplus of the current account in 2015 is € 245 million; the balances of trade in goods and trade in services are positive, the balances of primary and secondary incomes are negative.

Increase in liabilities results due to a reduction in commitments for direct investment and an increase in liabilities of portfolio and other investments. Gross external debt is exceeding €45 billion, which is almost 2 billion less than it was at the beginning of 2015; more than half is government debt. The net external debt of about €11 billion has fallen below 30 percent of last year GDP. The yield on 10-year bonds has remained stable at approximate level of Spanish and Italian.

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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