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

Prospects of economic growth are shifting from exports to domestic demand

Gospodarska gibanja 494

Prospects for economic growth are shifting from exports to domestic demand. After the exports had rescued Slovenian economy from the calamitous effects of "savings", the dynamics of domestic demand in 2015 is slowly taking over the promotion of GDP growth, which was particularly pronounced in the last quarter of the previous year. Faster growth in spending on durable goods characterizes households` consumption while faster growth of investment in equipment characterizes investments in fixed assets.

Consumers` optimism is growing; households assess their current and future financial situation favorably and they also better assess the economic situation in the country;  expecting reduction of unemployment and higher inflation. They are but reluctant to increase their own intentions for major purchases and in assessing the suitability for savings.

Slovenian economy is slowly moving from the crisis to normality; any rapid increase of "fiscal efforts" should therefore be avoided as extremely harmful. The level of actual (and for this year and next year projected) GDP remains far below potential GDP, the negative output gap is at about 5 percent and will be, at the announced growth, only slowly decreasing.

December's trade with foreign countries was better and improved full-year result in a surplus of more than 2% of GDP.
The improvements in business climate were in February shaped by increased confidence in manufacturing and construction. The climate in the services sector remained unaltered, optimism in the retail trade strengthened. In February, general economic climate in the EU28 recovered; orders in manufacturing and construction increased, the expectations in retail trade improved as well.

Industrial production, which is determined by manufacturing, was growing; it was by 7.2% larger than in December 2015. The very volatile mining in yearly comparison collapsed while its impulse trend is growing rapidly. In the EU, in December compared to November, industrial production contracted but it increased in comparison with the previous year.

The value of construction works in December was lower than in November, but much higher than a year ago, the impulse trend however indicates slight weakening. The number of tourist overnight stays grew rapidly; especially overnight stays by foreign guests. There were one fifth more passengers in air transport than in December 2015, the distances measured by of passenger kilometers were but much smaller. Loading goods in Port of Koper was much larger than in the previous year.

Labor market situation has improved, which has been demonstrated mainly in annual comparisons. At the end of February, the number of job-seekers was as much as 12.7 percent lower than in February last year. Most of new registered job seekers were persons who lost their temporary jobs, most of those leaving employment offices found  new jobs or self-employment. The unemployment rate in the euro area and in the EU28 did not change but it was much lower than in the previous year; the lowest in Germany and the Czech Republic, the highest in Spain and Greece.

A long period of deflation and stagnation of prices has ended. In February, annual inflation rose above 2 percent, the trend dynamics strengthened as well. After four years, inflation in the euro zone returned to "a normal" or target level of 2 per cent. The return of inflation to the target level is more than to monetary policy due to higher prices of raw materials and energy.

In a year, prices of transportation which increased most were followed by prices of food and non-alcoholic beverages; above average went up prices of communications, water, electricity and fuel, while prices in other categories of goods and services lagged; prices of clothes and shoes dropped. Industrial producers' prices followed the retail sale prices; yearly growth in January became positive after a long time; impulse trends were positive as well. World prices of raw materials, measured in €, increased which was also helped by lower value of € against the US$.

Average monthly gross and net salary in December was 3.4 percent higher than a year earlier, but as the number of working hours in December 2016 was lower than in the previous year, the earnings per hour increased by 7.5 percent.

In the first two months of 2017, the inflows into public treasuries were 7 percent larger than in the first two months of 2016. More was brought by income tax, less by tax on profits, while social contributions reflected wage increases and higher employment. This is not the case with indirect taxes, as the payments are associated with interchanges of working days in a month.

Quite a long period of contraction in bank lending is ending; the volume of loans to non-financial corporations in January with more new loans again surpassed the volume of loans to households. In deposits, the situation changed considerably; deposits of companies declined, deposits of households increased, the increase in total deposits was modest. There were no substantial changes of the interest rates. ECB key interest rate, the interest rate on marginal deposit facility and the marginal lending facility rate remained unaltered. Deposit interest rates in Slovenia are as a rule somewhat lower than in the euro zone, lending rates slightly higher, but this is not true for all kinds of very diverse consumer and housing loans. Similar is the situation in deposit and lending rates for companies.

Last year a new record in the positive balance of the current account was reached, the net external debt is declining, falling yields on government bonds indicate improving confidence in Slovenia. The surpluses on the current account in December and throughout 2016 were created by surpluses in goods and services accounts and lowered by the deficits in the accounts of primary and secondary income. The financial account shows that capital outflows through direct and other investment and inflows through portfolio investment.

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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