• Velimir Bole
  • Jože Mencinger
  • Franjo Štiblar

Investments are creating the record growth of GDP


In the first quarter of 2017 Slovenia had the highest annual GDP growth among euro area countries. Growth was promoted by investment, as household spending stagnated, government spending was even shrinking, the contribution of international trade was since the beginning of 2016 slowly decreasing. After 2013, investments in equipment and buildings revived. Acceleration of the construction investments is indirectly revealed by the real estate market.

A large jump in foreign trade in March was partly due to a larger number of days, but also yearly results are more favorable than in the previous month. By the dynamics, Slovenia belongs to EU28 Member States with above-average growth. Outside the EU, Slovenia generates just one-fifth of her trade.

Expected dynamics of spending in the next few months is above average, especially in the construction sector. The weakest demand continues in the service sectors, although their expectations exceed long-term averages. Export demand is not expected to change, while expectations in retail trade indicate an increase of household spending. Yearly differences in the economic climate, thus the differences between this year's and last year's assessments of the situation show that in the five months of this year the economic climate is better than in the corresponding months of last year, but the difference ceased to rise. The most significant contribution is a big difference between this and last year`s indicator of confidence in the construction industry. Confidence in the service sector has been higher this year than last year, while the confidence in trade decreased slightly and in manufacturing remained at last year's level.

Business sentiments in the EU28 in the first quarter compared with the same period last year improved slightly, the current sentiments remain unaltered. According to the German IFO institute, the world economic climate improved in the second quarter; exceptions are Latin America, Africa and the Middle East.

Industrial production in the first quarter was increasing; an even greater increase was in otherwise very variable mining, and in manufacturing activity, while the electricity, gas and water were lagging. The annual growth of industrial production in the EU in the first quarter was approximately two per cent, slightly higher than last year's average; processing industry has grown slightly faster, the growth of construction fluctuated, but strengthened, sales in retail trade increased as well.

Growth in construction was outstanding, growth of new contracts points to continuation which might however be threatened by lack of capacity. It should not be overlooked that this is a record growth from the level which is almost half lower than in 2010. Tourism in the first two months of the year was fine, a good result was created by foreign guests, while domestic guests impaired it.

In the air passenger traffic, the results in the first three months were bad. In the Port of Koper considerably more goods were transported than in the first quarter last year. Last year's acceleration of road and rail transport of goods reflects their adjustment to economic recovery.

Increased number of active population is reflected in a rapid decrease of unemployment; the 3.5 percent annual growth of employment in companies was accompanied by a more modest growth in the number of employees by individual businesses and self-employed. April brought a new decrease in the number of registered jobseekers, the outflow of job seekers from employment offices significantly exceeded their inflow. ILO unemployment rate in the EU28 declined slightly in March, much higher rate in the euro area remained unaltered. Extremes remain the Czech Republic and Germany on the one hand and Greece and Spain on the other. More than the average unemployment is in the Mediterranean EU member states.

The growth in the cost of living slowed down in May, reducing also the more long-term dynamics; price growth in Slovenia was only slightly higher than in the euro area. The prices of industrial producers were slightly higher in sales abroad than in sales at home. There are rising prices of old and new residential property, but growth of the old real estate prices is stronger and less fluctuating than of new estates. Current acceleration in prices is accompanied by the strengthening of price expectations; particularly the expectations of industrial producers, but also of the companies in the service sectors and in construction. The retail price expectations remain on the long-term average values.

Average wages, after falling in February, increased in March but more long-term wage growth remained lower in March than in January. In some private sectors wages rose significantly more than the average. In the public sector current salary increased less than one percent in a yearly level in health and education activities, in administration it was the same as in the average of the economy. In manufacturing firms, supply of electricity and water the dynamics of unit labor costs accompanied the dynamics in the euro area while the dynamics of unit labor costs in retail trade, financial and insurance activities is systematically slower than in the euro area.

After weak March there was a sharp increase in government revenues in April which were also very high in the year to year comparison. There was a strong increase of revenues from almost all major taxes, especially from profit tax. The decrease occurred only in minor tax forms. An exception is the value added tax on imports which is passing to the value added tax on domestic activity. By April, the cumulative government revenues exceeded last year's by over 1% of GDP.

Total loans to households and businesses started to rise in October last year, accelerated in the beginning of in 2017, but grew more slowly afterwards. The annual rate which became positive in January has remained positive. Deposits of enterprises and households, after rising for seven months, decreased in April but they continue to grow on the yearly level more slowly and are at the same level as before the crisis. Household´s deposits began to recover after the fall due to a ZUJF and crisis in Cyprus; at the beginning of 2017 they have already reached the level of the euro area. Corporate deposits stick up with deposits of enterprises in the euro area. The interest rates of the ECB remained unaltered. The interest rates on the money markets did not change. Interests on deposits with shorter maturities are closer and closer to zero, the lending rates to households remained unchanged, while loans to companies for small amounts became cheaper and for larger ones more expensive.

The surplus in the current balance of payments is still growing, its growth, which is determined by the surpluses in goods and services and deficits on the accounts of primary and secondary income, is but slowing. Net external debt has fallen to less than one quarter of GDP, yields on ten-year Slovenian government bonds remain favorable; they are less than one per cent.

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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