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

How long will export unrevel nonsenses of economic policies?

Gospodarska gibanja 487

Domestic consumption grew strongly in March, a trend was however decreasing. The fall was caused by a rapid trend reduction of investments related to the construction industry, which, due to the terminated European funding, returned to troubles. The speed and the size of this contraction related to the termination of EU funding show how big are the costs of austerity in government investments in the post-crisis stagnation. The data on GDP in the first quarter of 2016 confirm the nature of the economic activity, indicated by domestic and foreign spending in March. Economic growth continues to be strong, because the decline in investment was accompanied by speeding up in exports, the size of which is three times greater than the size of investment. Therefore, exports also neutralized the stagnation in government spending and slight decline in household spending. Slovenia has for two years systematically outpaced export not only the euro area but also in Germany. The economy was generating a financial surplus which enables compensation for the contraction of credit.

Due to the one-sided running of economic activity, part of the economy is permanently malnourished; demand for products service sectors has not yet recovered from the crisis level. This outlook does not suggest changes in the near future.

 After a long time, some negative annual growth rate of export and dispatch of goods to the EU appeared, while the decline in imports is not so unusual. Within the EU28 Slovenia retains above-average results, as the current dynamics in the EU28 is also slowing.

In May, economic climate cooled down. The decrease from April was most affected by the decrease of confidence in services and manufacturing. Confidence in the construction sector is getting weaker, the expectations are bad. Confidence in the retail trade recovered, but it is worse than it was a year ago.

Industrial production in March, both measured by annual increase and the impulse trend, is increasing. In the EU, in March compared to February, in both the euro area and the EU28 industrial production fell but increased slightly if compared to the 2015. Fluctuations among the States and from month to month remain large.

Construction is again in a deep crisis which is reflected in current data and in annual comparison of the value of construction works, the situation, if measured by working hours, is somewhat better. Tourism performs well which is reflected in both annual data and in the current dynamics; this is mainly attributable to foreign tourists. In air transport, the number of passengers and passenger kilometers were one third larger than last year, while port of Koper handled a tenth fewer goods than last year.

The labor market situation is still improving, as evidenced by the increase in the number of economically active population, the number of employees in companies, and the trends in the employment offices. The number of registered job seekers decreased, there were less newly registered jobseekers, while the number of those who regain employment or self-employment increased. Most of the fluctuations is generated by jobs for a certain period of time. Unemployment rates in the EU and in the euro area is slowly decreasing, the lowest being in the Czech Republic, the highest continues to be in Spain and Greece.

Prices in May rose, while more long-term dynamics remained negative, but the decline is slowing down. Industrial producer prices in April decreased and year on year they were significantly below the level of the previous year. The dynamics of industrial producers prices in individual markets is alike. Price expectations show that the price increases in May do not indicate a more noticeable reversal in the dynamics of prices. Indeed, retail prices of goods can even  accelerate the decline.

Average wages in March in most activities rose more than in February; acceleration was mainly seasonal, more long-term dynamics decreased. Wage growth in education and health has been much slower than in the administration, but still about as fast as in the average activity of the economy.

Dynamics of unit labor costs in industry after 2012 as a rule clearly exceeded the dynamics in the euro area while in the services sectors, the lead of Slovenia before the euro area collapsed at the end of last year. Unit labor costs of the government and education grew much more slowly than the corresponding unit labor costs in the euro area. Unit labor costs in the health sector in the same period in Slovenia grew relatively much more, especially in the early part of the period.

General government revenues in the last three months, despite general growth, were swinging considerably, which was a result of fluctuations in 2015, therefore, the result of changing the base. This year, government revenues significantly rose from February onwards so that by the end of May they were cumulatively for over 260 million € (0.6% of GDP) higher than in the same period last year. In the last two months, the revenues of most tax forms of direct taxes significantly exceeded the corresponding values in 2015. All three tax forms together brought about 130 million more than in the same period last year. The revenues of indirect taxes (VAT after the settlement, excise duty, and VAT on imports) increased as well. The reasons for such an increase in the revenues of these taxes are increases of domestic demand and increase in prices of petroleum products.

Total loans in April rose, but in a longer term they declined. Approximately equal were current increases in loans to households and businesses, while the more long-term dynamics of loans to enterprises continue to be substantially lower. Total deposits in April also increased and they increased also in the long-term which holds true for both deposits of households and firms. Wholesale interest rates remain very low, lending rates to households remained unaltered, the rates of corporate loans went down, deposit interest rates decreased slightly. Changes in interest rates in the euro area were much lower than in Slovenia.

Despite reduced dynamics of the annual growth, the current account remains highly positive in March, and thus also in the entire first quarter. External debt increased slightly, the yield on Slovenian government bonds at the beginning of June fell to just 1.41%, which is less than for Italians and Spaniards.

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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