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

Insufficient domestic demand remains the obstacle

Gospodarska gibanja 493

In the last quarter of 2016, there was no notable slowdown in the growth of spending! A survey data on the size of demand constraints indicate that spending is at a satisfactory level only in the manufacturing sector, while in the construction and services sectors insufficiency of demand remains a major obstacle for normal operations. In all three segments of the economy, demand restrictions have been reduced in the fourth quarter of 2016. In a more long-term restrictions were reduced in services and manufacturing, while they stagnated in construction. Growth in the number of transactions in the real estate market stopped, both for new and for old properties.

Expected consumption of goods in the next few months does not indicate major changes, it is a little more intense than the long-term value; only households spending slowed. The export demand for goods is stable and exceeds the long-term value. Expected consumption of services remained stable slightly above the long-term value.

In November, trade balance was, after a long time, negative; the deficit in trade within the EU was larger than the surplus in trade with the rest of the world. In eleven months of 2016, the surplus in trade with the rest of the world was greater than the deficit of trade within the EU. In the same period the terms of trade improved.

A slightly improved business climate in January was based on higher consumers` confidence and confidence in the manufacturing and services sectors. Confidence in the manufacturing sector was higher in January than in December and January 2016, and higher than the long-term average. This is the case also with the confidence in the service sector. The confidence was slightly spoiled in the construction sector but expectations there achieved the highest value since 2008. Confidence in retail trade in January decreased. Throughout the EU28, business climate in January 2017 compared to the same period last year improved slightly.

The dynamics of activities in the individual sectors after the crisis reveals considerable differences. After the collapse in 2009, industry recovered the fastest, while the situation has been the worst in the construction sector, which shrank continuously for five years. The dynamics of the transport activity varied, but on the average, remained positive.

Industrial production in November in the year to year comparison recovered and the trend dynamics improved as well. In the EU it increased on the monthly and on the yearly level; in relation to the previous month, it grew most in Ireland and Denmark, and  declined most in Portugal and Greece.

The value of finished construction works in November 2016 was higher than in October, but much lower than in the previous year. Total number of tourist overnight stays in late autumn at least relatively increased significantly; domestic and foreign demand for tourism increased, while the trend strengthened in domestic and weakened in foreign tourism. Mild annual growth also continued in the passenger air transport, while cargo in the Port of Koper was in November a tenth less than in the previous year.

In the period November 2015-November 2016, the number of employable persons rose by a percent, the number of active population by two and a half percent, the number of  employees by over three percent, and the number of self-employed by three percent. The number of job seekers in December and January rose again to over 100 thousand, the increase is seasonal. The newly registered jobseekers are dominated by those who lost their jobs for a certain period of time, among those who are leaving the employment offices majority get new jobs or are self- employed. The unemployment rate in December, monthly and annually, declined in both the euro area and throughout the EU; the lowest unemployment rate were in Czech Republic and Germany, the highest in Spain and Greece.

In December, costs of living index declined while they increased in the year to year comparison. The goods became cheaper, services more expensive. In a year, service prices went up, prices of goods remained unaltered. Core inflation followed a similar pattern as the costs of living index. It decreased in December, the trend is increasing. In the euro area, autumn acceleration of price growth was more intense than in Slovenia; in the euro area the retail energy prices turned up, while core inflation has grown year on year! An even greater acceleration of prices in the EU was experienced in January.

Producer prices of industry in December increased both for domestic and export markets where prices, due to weakening of the euro, accelerated even more. Price expectations indicate no significant changes. Real estate prices fluctuate, commodity prices continue to grow rapidly, except oil prices which were rising only slowly, but which in a year increased for 68 percent.

Average earnings soared seasonally in November, long-term dynamics remained low, impulse trend increased mildly, hourly earnings in the longer term even dropped. The differences among sectors are large, there was no acceleration of salaries in the public sector. A more long-term average wages in the economy rose only modestly, but even that at the expense of only some activities. Year on year increase in the government segment exceeded 2.9%, the highest was in health care. Current stagnation and noticeable annual wage growth in the public sector is the result of an adjustment of bonuses to salaries. However, in the public sector the costs of regular salaries increased as well. By accelerating, the labor costs in the public sector only neutralized the drop caused by the ZUJF.

General government revenues in December increased by 4.8%, but the increase was the result of a season and one-off impacts, more long-term dynamics (impulse trend) even fell. While the annual dynamics is similar in both domestic taxes on goods and services and direct taxes and other revenues, the gap in December was caused mainly by domestic taxes on goods and services, as their speed of contraction trend was much higher.

The figures for the whole last quarter show a weakening of the dynamics of domestic taxes on goods and services, since the relevant taxes throughout the last quarter fell both in the third quarter of 2016 compared to the last quarter of 2015. The slowdown was largely caused by value added tax. The January data on tax revenues of indirect taxes indicate at least partial normalization. Direct taxes and other revenues of the general government sector in December increased, mainly due to income from tax forms in which the tax base implied components of household income.

Total loans to businesses and households increased slightly in November; loans to households continued to increase, loans to businesses decreased less intensive. On the year to year comparison loans to enterprises continued to fall, while loans to households accelerated. The structure of loans is thus slowly approaching the corresponding structure in the euro area. In the euro area loans to companies have been virtually stagnant for more than two years, while in Slovenia they have stagnated since the third quarter last year, but at a level that is a quarter lower than at the end of 2014. The dynamics of loans to households in Slovenia is catching up the loans in the euro area.

Total deposits of companies and households continued to grow; growth of the deposits by companies exceeded the growth of deposits by households.  Deposit growth is outpacing growth in the euro area. Interest rates continue to falter, which is not likely to change soon, as the ECB moves end of quantitative easing to the end of the year. In November, there was a small reduction of borrowing rates for companies, and an increase of deposit interest rates for residents. Deposit interest rates are lower and lending rate higher in Slovenia than are the corresponding interest rates in the euro area. Only for consumers loans the interest rate are lower in Slovenia than in the euro area.

Surplus in the balance of payments declined in November; it continues to be created by the surpluses in the goods and services accounts and deficits in the accounts of primary and secondary income; the latter primarily due to higher payments to the EU and smaller payments from EU coffers. Similar is the structure of the balance of current transactions in eleven months. In the financial account, the capital account outflow was through the accounts of direct investments and other investments, the inflow was through a portfolio account. Gross and net external debt fell sharply in November, the yield on Slovenian ten-year bonds on 6 February 2017 amounted to only 1 percent.

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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