• Velimir Bole
  • France Križanič
  • Jože Mencinger
  • Franjo Štiblar

Export demand has remained the pillar of growth

Gospodarska gibanja 498

Domestic final demand rose sharply in June; all three components of domestic consumption increased, while demand for exports after three months of increases declined in July. Quarterly data on contributions of individual spending components to GDP growth indicate that after 2012 only exports are systematically and strongly pushing GDP growth and that its contribution in Slovenia is greater than in the euro area. Last year, investments kept pace with GDP, contributions from other spending components are slowing GDP growth. This differs from expectations, as the expected final consumption exceeds the average level in all components. Also on the production side, i.e. in manufacturing, retail trade, service sectors and construction, expectations exceed long-term average values.

Favorable trends in foreign trade continued in the summer, but trend in July showed signs of calming down. Exports continue to grow faster than imports, which is why a surplus on the goods account is also growing. Terms of trade in the second quarter were favorable: the growth of export prices exceeded the growth of import prices.

Economic activity in the EU remains solid which is also reflected in the decline of unemployment. Expectations and orders also indicate a continuation of favorable trends, so that Slovenia could continue to rely on export demand. Expectations and estimates of orders in Slovenia, with faster economic growth, are understandably better than in the EU. Confidence indicators in most activities also indicate that optimism is strengthening.

Industrial production grew rapidly in the first seven months, it was higher than last year's comparable and also higher than the pre-crisis level. In July, growth slowed down.

The shift to stable growth, which began in manufacturing, was transferred to other sectors; in the first half of the year, nominal turnover of service activities was 8% above the comparable last year. Tourism, measured in guest overnight stays, is rapidly increasing primarily due to foreign guests. Construction activity measured by the real value index of works carried out, was in seven months 16% higher than in the corresponding period last year. Acceleration is mainly due to investments in housing. However, compared to the first seven months of 2008, this year's real value of construction works was 63% lower. In transport, number of passengers in bus transport increased sharply, and number of passengers at airports was greater than last year so was also the cargo in Koper, while number of passengers in air travel dropped significantly.

The number of active population and employees grows rapidly; in June, the number of employees was however lower than before the crisis, but higher than before the overheating period which had preceded the crisis. The number of jobseekers continues to decline at two-digit rates, while absolutely it is likely to increase between September and January. Unemployment rate, which allows for informal forms of employment, was 6.4 percent; in a year it fell by 1.4 percentage points.

In August, the cost of living increased slightly, the trend dynamics remained negative, the year-on-year rate was positive. Prices of goods dropped, prices of services rose; the more long-term dynamics in services remains almost the same as in goods. The harmonized index of living costs rose in August; price growth in the euro area was a bit faster than in Slovenia. Industrial producer prices rose in July; differences in price growth regarding the use of products and across markets are small. Price expectations in the prices of services and prices of industrial producers remain high, while expectations for prices of goods are revolving around long-term averages. Prices of raw materials declined in August, the differences in the dynamics of individual groups were high; prices of food and oil materials have fallen, prices of metals have risen. In the long run too, the differences were hefty; metal prices rose by a quarter, while raw material prices fell by 10%.

In spite of high expectations, the actual wage increases continue to be very modest. The fluctuations in the dynamics of average wages continue without a strong trend. In June, average wages dropped, the growth of the impulse trend halved, while year-on-year growth fell to 2.4%. As the hours paid in June in comparison with May fell more than average wages, the average hourly pay increased considerably.

The relative level of unit labor costs in industry and service sectors is changing little compared to labor costs in the euro area, only in the general government sector unit labor costs are approaching the level of unit labor costs in the EU. They approached after the third quarter of 2015, when the frozen promotion was released, but the catching up ended immediately. Since then, relative costs are no longer increasing; The exception are unit labor costs in education, which slowly catch up with the euro area.

In August, general government revenues also rose rapidly. In eight months, general government revenues grew by 610 million €!; direct taxes and other revenues grew even faster than total revenues. Indirect taxes declined considerably in August, but their longer-term dynamics also grew considerably. The bulk of the reduction in indirect tax returns was due to the year-on-year fall in excise duties, likely due to a shift in payments.

Total loans to companies and households were lower in July than in June. After the jump in loans to companies at the end of 2016, this year there is not much happening in these loans. Loans to households are much more dynamic also in comparison with the euro area. The total corporate and household deposits in July accelerated strongly for the second consecutive month, increasing by more than 200 million € in a month. In spite of rapid current growth, more long-term dynamics continue to decline slowly. Interest rates on the wholesale market remain unaltered; deposit and loan rates stagnate or fluctuate. Changes in monetary policy can only be expected at the end of the year when borrowers with euribor-related interest will lose out on borrowers with fixed interest rates.

The current account surplus is rising; the seven-month surplus on the current account is the result of goods and services surpluses and deficits in primary and secondary incomes. Balances of the components of the financial account are in 2017 considerably lower than last year. Gross external debt fell slightly, net debt increased slightly. The yield on Slovenian ten-year bonds is one 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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