Risk and opportunity of the abundance of public revenues
After a strong March, domestic consumption slowed down in April; a significant part of the decline is seasonal. The slowdown is also reflected in the movements of revenues by economic activities, which confirm that accelerating growth up to the first quarter of this year depended mainly on consumers spending, exports and investments in construction. The strongest contribution was made by investments while the most sustainable contribution was made by export demand, which has been since the beginning of 2015 constantly pumping up GDP growth. The deceleration of construction revenues was thus important for the April braking of growth; less systematic deceleration of the government's spending since the first quarter of 2016, was also important.
Both, exports and imports, in the first five months of 2017 were continuously growing rapidly, with a small positive balance being maintained. In intra-EU trade, Slovenia created small deficit, which was covered by the trade surplus with the rest of the world.
Economic activity in the EU, which largely shapes the situation in the Slovenian economy, remains solid, and the unemployment rate is rapidly declining. Such good economic results also influence the assessments of the present situation and the expectations. Optimism in the Slovenian economy is also strengthening. Expectations of builders continue to grow rapidly, exporters continue to expect an above-average growth in demand, and expectations in retail trade also exceed the long-term average level. Expectations do not therefore indicate to a noteworthy contraction of final consumption over the next few months.
Industrial production climbed above a comparable level in 2008, and its growth is about three times faster than growth throughout the European Union. In five months, it was almost 7 percent higher than last year. Slovenia's export-oriented manufacturing structure is thus increasing its market share and current growth is not only a consequence of the overall economic situation.
In the first five months, the value of construction works was almost 18% higher than in the same period last year. After the start of high-rise construction, the low-rise construction has finally begun. With the acceleration, the growth of construction activity in Slovenia overtook its growth in the European Union; indeed, its decline during and after the crisis in Slovenia was much deeper.
Tourism, judging by the overnight stays, has been increasing since 2015. The strengthening is mainly based on the increase in the number of overnight stays by foreign guests.
The activity in the transportation sector is also increasing: the transport of goods by road and rail, and the number of passengers at the airport are growing, while the airline's passenger traffic drops dramatically.
The labor market gradually returns to balance. The number of active persons, and especially employees in companies and organizations, has been increasing. At the same time, the number of registered job-seekers has dropped rapidly. In June, they were 15 percent less than a year earlier, but 40 percent more than before the crisis. In May, the unemployment rate was below the EU average even more below the euro area average, but it was falling everywhere.
Prices, both in Slovenia and in the euro area, continue to descend. In June, the cost of living remained unaltered, in the long run, price growth was decreasing. After April, price growth in the EU also decreased in the long run, although the decrease in Slovenia was higher.
The prices of industrial producers rose in May and have also grown year on year. The prices of raw materials continue to rise fastest. While at the beginning of the year the producer prices of exported goods were rising faster, in May prices of products for the domestic market led, while the prices for export markets, especially outside the euro area, remained the fastest in the year on year comparison.
Price expectations continue growing, except in retail trade, where prices, with noticeable fluctuations, stick to more long-term average dynamics. The prices of raw materials in € slowed down until the end of June, while prices of metals were rising strongly.
In spite of strong economic activity, wages and unit labor costs halted. In April, average wages declined sharply, and current wage growth was negative in most activities, which is surprising in the face of rapid economic growth. In public sector, wages have increased, especially in health care.
Unit labor costs, which were largely squeezed in the public sector but also reduced in the business sector began in the middle of last year hunt the euro area. The catching-up and overtaking of unit labor costs in the euro area stopped at the end of last year. In the public sector, where due to the ZUJF, labor costs fell more than in the business sector, the gap continued to widen until the third quarter of 2015. After short catching up, unit labor costs in the public sector increased substantially in the beginning of 2017.
The June increase in general government revenue was expected, though the increase exceeded expectations. In June, the largest increases were recorded in pension contributions and personal income taxes, followed by corporation taxes and health insurance contributions. Among indirect taxes excise duties on domestic goods and services were the highest in June, while revenues from value added tax and excise duties were high during the second quarter.
In half a year, half a billion € more were collected by public burses than in the first half of last year. The situation is quite similar to the situation at the end of 2005, and it is important to draw attention to pressures to lower taxes and to reject them. Abundance, however, makes it possible to immediately eliminate at least the worst consequences of some of the past economic policy mistakes. Among them is the non-payment of hospitals and the accumulation of delays due to the absurd formal blockade of the imbalance in the cash flow of the healthcare fund. It increased debt and harmed the payment discipline.
Total loans to private units rose slightly in May; only loans to households contributed to this, while loans to companies fell again. In the euro area, corporate loans also stand, but their level of GDP is much higher. After the third quarter of 2016, household loans began to noticeably accelerate, but the level of these loans is even much lower in Slovenia than in the euro area.
Total deposits of private persons rose in May, more long-term dynamics has been weakening since January. Household deposits have overtaken the corresponding deposits in the euro area since the end of 2013. Corporate deposits declined in May, and their longer-term dynamics, which remains noticeably stronger than in the euro area, dwindled again.
ECB interest rates remained unaltered, the one-year euribor negative. Some borrowing rates decreased slightly and deposit interest rates did not change.
Following the adjustments made by the BS, this year's five-month surplus of the current balance of payments is at the level comparable to last year level. The surplus is formed on the goods and services accounts, and the deficit on the accounts of primary (primarily capital) and secondary (primarily state) incomes. External indebtedness did not decrease in the second quarter, while yields on Slovenian ten-year bonds rose slightly.
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