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In the Spotlight
The autumn forecasts by international institutions are much more pessimistic than the spring forecasts largely due to the consequences of the financial crisis. The IMF and EC predict stagnation of economic growth in the euro area for next year. The EC even envisages a recession for the U.S. The forecasts of economic growth in Slovenia’s main trading partners for 2008 do not diverge from IMAD’s autumn forecasts, but the forecasts for the coming year are significantly lower, mainly as a result of the financial crisis, which has deepened since September. At the same time inflationary pressures are slowing due to a decline in commodity prices and slower economic activity. Inflation forecasts are thus also lower than in the spring. The slowdown of inflation has already enabled central banks to cut their key interest rates; the ECB key interest rate thus totals 3.75% and the Fed interest rate 1.0%. In numerous European countries, governments and central banks joined efforts to stem the crisis and offset its consequences, largely through measures aimed at reviving financial markets. Some of the most vulnerable countries were also granted loans by the IMF in recent weeks.
The consequences of the financial crisis had already affected conditions on the Slovenian financial market before the crisis deepened in September. Data for the period to August indicate that the conditions of financing domestic non-banking sector debt tightened notably with the rise in lending interest rates, which resulted in an accelerated slowdown of lending activity. Growth of bank loans to domestic non-banking sectors declined in August for the seventh month in a row. The decline was larger for corporate loans (to 25.5%) and somewhat smaller for household loans (to 20.2%). Given the aggravated access to refinancing on foreign markets, banks are becoming increasingly dependent on household savings. Owing to a smaller volume and less favourable maturity of household savings compared with foreign resources in the past, banks are adjusting their interest rate policies. The financial crisis has also affected the dynamics on the Ljubljana Stock exchange, where in September the main index posted its largest monthly drop in ten years and the volatility also increased.
Given the moderation of GDP growth in the international environment, economic activity is also slowing in Slovenia. Merchandise trade growth is decelerating. Due to a significant drop in August, growth of merchandise exports (4.8%) was notably weaker than import growth (11.0%) in the first eight months of this year. The volume of production in manufacturing declined for the second month in a row. In the first eight months of the year, production volume growth was thus only 1.1% stronger than in the same period last year. Data on business tendency surveys indicate a continued slowdown, given that in October the confidence indicator dropped to its lowest level since 1999. Construction activity is also slowing, though it is still relatively high. A gradual slowdown in activity has also been observed in market services.
Some first signs of moderation are already visible in certain areas of the labour market, even though this has not yet been shown by the aggregate indicators. The number of persons in formal employment and the registered unemployment rate (6.5%) remained unchanged. Y-o-y employment growth in August was 3.0%. The strongest growth in the number of employees was still recorded in construction, whereas the number of persons employed in the energy sector, distributive trades, hotels and restaurants, education and manufacturing declined in August for the second month in a row.
The total gross wage increase (2.4% in nominal terms) in August was the highest this year, largely due to high gross wage rises in the public sector. Due to the disbursement of the first quarter of funds to eliminate wage disparities along with payments for the difference accrued since May, the gross wage increase in the public sector totalled 8.4% in nominal terms, which is somewhat below expectations, though the final increase cannot be estimated until, in the coming months, all adjustments have been completed and possible faults removed. Wage growth in the private sector stagnated in August, which can already be indicative of the impact of moderated economic activity. The total gross wage in the first eight months of this year was thus higher by a nominal 8.5% than in the same period last year.
Consumer prices remained unchanged in October for the second month in a row. Y-o-y inflation dropped for the fourth successive month and totals 4.9%. Against the background of rapidly declining oil prices, a slowdown in food prices and decelerated economic activity, y-o-y inflation is decreasing both in Slovenia and at the level of the entire euro area, where it totalled 3.2% in October. Similar to developments a few months ago when amid the rising prices of oil inflation increased much faster in Slovenia than in the entire euro area, the oil price decline now has a relatively greater impact on inflation in Slovenia than in the euro area. Due to the easing of price pressures in other groups, core inflation, which stood at 4.5% in September, is slowing as well.
The current account deficit continued to widen in August. In the first eight months of this year, the deficit topped EUR 1.5 bn and was mainly underpinned by the trade deficit increase. More than half of this increase came from deteriorated terms of trade. The factor income deficit and the current transfer deficit continued to widen in August. The deterioration in the current account balance is mitigated by the surplus in the services balance, which also continues to increase.
Amid further favourable economic trends in the first half ofthe year, growth of general government revenue and expenditure was stronger than in the same period last year. General government revenue growth in the first seven months of this year (13.0%) was more than twice as high as in the same period last year; growth of general government expenditure was higher as well (8.0%). By the end of September, payments into the EU budget reached 72% of planned funds and receipts from the EU budget around 30% of the amount envisaged by the supplementary budget for 2008. Data for the previous years indicate that receipts vary between months. On the basis of the available data, we can therefore draw no conclusions as to the realisation at the end of the year.
Contents
In the Spotlight
Current Economic Trends
- International Environment
- Economic Developments in Slovenia
- Labour market
- financial markets
- Public Finance
Selected Topics
- Municipal Waste
- Agricultre - Production
Statistical Appendix
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Economic Mirror Oct 2008.pdf, 5,377 Kb
