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Slovenian Economic Mirror: Amid a further deterioration of the situation in the financial sector, economic activity remains modest
/12.06.2012/
LJUBLJANA
In the first quarter of this year, economic activity in the euro area stagnated, while for 2012 as a whole, the European Commission and the OECD project a contraction of economic activity. The key reason why economic activity in the euro area exceeded the expectations from the EC’s spring forecast in the first quarter was GDP growth in Germany. The EC and the OECD nevertheless expect a decline in euro area GDP for this year. The forecasts are sill accompanied by significant downside risks that are mainly due to uncertainties regarding the sovereign debt crisis. Unfavourable labour market conditions will continue and the high unemployment rate will, amid continued fiscal consolidation and bank deleveraging, additionally impede domestic demand.
In the first quarter, Slovenia’s GDP increased somewhat relative to the last quarter of 2011, but Slovenia remains among EU Member States with the largest drops in activity during the crisis. Year-on-year, GDP contracted by 0.2%. Net exports again made the largest contribution to growth in economic activity, but the y-o-y growth of exports slowed further while imports declined. The key reason for a smaller y-o-y decline of GDP than in the previous quarter was growth in household and government consumption. The latter is likely a result of the relatively strong growth of employment in the general government sector. In household consumption, spending on durable goods continues to drop and current data show a continuation of these trends. The y-o-y decline in investment was larger than in the previous quarter, as besides construction investment, investment in machinery and equipment also dropped y-o-y.
Labour market conditions remain unfavourable, regardless of declining unemployment; the average gross wage rose somewhat in the first quarter on the back of extraordinary payments in the private sector. The number of employed persons, excluding self-employed farmers, dropped somewhat further in the first quarter of 2012, once again most notably in construction, while in public services employment continued to grow. On the other hand, data from the labour force survey show an improvement (seasonally adjusted), which we estimate is a result of an increase in informal work. In April, registered unemployment declined somewhat again (seasonally adjusted) but remained high (109,084 persons). In the first four months as a whole, it was down 1.2% year-on-year, largely on account of a lower number of registered persons and a higher number of unemployed deleted from the register, mainly for neglect of duties. In the first quarter, wage movements in private sector activities were marked by extraordinary payments, while in public service activities, wages were down y-o-y due to intervention measures.
Consumer prices rose by 0.6% in May, while their y-o-y growth dropped to 2.4%. Monthly growth was underpinned particularly by stronger seasonal movements in prices of food and clothing and footwear, while growth in the latest twelve months remains low due to modest economic activity. This time, liquid fuel prices reduced monthly inflation by 0.2 p.p., but they still contributed 0.6 p.p. to y-o-y inflation. According to Eurostat’s flash estimate, y-o-y inflation in the euro area also stood at 2.4%.
In April, the situation in the financial system continued to deteriorate. The lending activity declined again in April. The volume of household and corporate loans was down, in particular, while the crediting of the government sector slowed significantly. In the first quarter, banks strengthened the repayment of all types of foreign liabilities while increasing short-term borrowing. In March, the volume of banks’ bad claims increased by the highest amount thus far, reaching almost EUR 6 bn or as much as 11.8% of the total exposure of banks. Around a third of the increase is attributable to the strengthening of non-performing claims, especially claims against the construction sector and financial and insurance services.
In May, the National Assembly adopted a revised state budget for 2012, setting revenue at EUR 7.9 bn and expenditure at EUR 9.0 bn. With the aim to avoid increasing the deficit as was the case in previous years, the revised budget envisages much lower expenditure than the previous budget and 3.7% lower than in 2011. In order to reach this goal, the Public Finance Balance Act (ZUJF) was passed in addition to the revised budget, putting in place a wide array of measures and amending 39 laws. As at the time of the adoption of the revised budget certain ZUJF provisions were still being reconciled, the total cut in expenditure is smaller than planned, which will require additional reallocations of expenditures within the budget. With revenue estimated to be 1.4% higher than in 2011, the revised budget envisages a deficit in the amount of EUR 1,071 m, i.e. 3.0% of the estimated GDP. The decline in the budgetary deficit is in line with Slovenia’s commitments in the Stability Programme – Update 2012, which anticipates consolidation of public finances.
UMAR - Slovenian Economic Mirror: Amid a further deterioration of the situation in the financial sector, economic activity remains modest
/12.06.2012/
LJUBLJANA
In the first quarter of this year, economic activity in the euro area stagnated, while for 2012 as a whole, the European Commission and the OECD project a contraction of economic activity. The key reason why economic activity in the euro area exceeded the expectations from the EC’s spring forecast in the first quarter was GDP growth in Germany. The EC and the OECD nevertheless expect a decline in euro area GDP for this year. The forecasts are sill accompanied by significant downside risks that are mainly due to uncertainties regarding the sovereign debt crisis. Unfavourable labour market conditions will continue and the high unemployment rate will, amid continued fiscal consolidation and bank deleveraging, additionally impede domestic demand.
In the first quarter, Slovenia’s GDP increased somewhat relative to the last quarter of 2011, but Slovenia remains among EU Member States with the largest drops in activity during the crisis. Year-on-year, GDP contracted by 0.2%. Net exports again made the largest contribution to growth in economic activity, but the y-o-y growth of exports slowed further while imports declined. The key reason for a smaller y-o-y decline of GDP than in the previous quarter was growth in household and government consumption. The latter is likely a result of the relatively strong growth of employment in the general government sector. In household consumption, spending on durable goods continues to drop and current data show a continuation of these trends. The y-o-y decline in investment was larger than in the previous quarter, as besides construction investment, investment in machinery and equipment also dropped y-o-y.
Labour market conditions remain unfavourable, regardless of declining unemployment; the average gross wage rose somewhat in the first quarter on the back of extraordinary payments in the private sector. The number of employed persons, excluding self-employed farmers, dropped somewhat further in the first quarter of 2012, once again most notably in construction, while in public services employment continued to grow. On the other hand, data from the labour force survey show an improvement (seasonally adjusted), which we estimate is a result of an increase in informal work. In April, registered unemployment declined somewhat again (seasonally adjusted) but remained high (109,084 persons). In the first four months as a whole, it was down 1.2% year-on-year, largely on account of a lower number of registered persons and a higher number of unemployed deleted from the register, mainly for neglect of duties. In the first quarter, wage movements in private sector activities were marked by extraordinary payments, while in public service activities, wages were down y-o-y due to intervention measures.
Consumer prices rose by 0.6% in May, while their y-o-y growth dropped to 2.4%. Monthly growth was underpinned particularly by stronger seasonal movements in prices of food and clothing and footwear, while growth in the latest twelve months remains low due to modest economic activity. This time, liquid fuel prices reduced monthly inflation by 0.2 p.p., but they still contributed 0.6 p.p. to y-o-y inflation. According to Eurostat’s flash estimate, y-o-y inflation in the euro area also stood at 2.4%.
In April, the situation in the financial system continued to deteriorate. The lending activity declined again in April. The volume of household and corporate loans was down, in particular, while the crediting of the government sector slowed significantly. In the first quarter, banks strengthened the repayment of all types of foreign liabilities while increasing short-term borrowing. In March, the volume of banks’ bad claims increased by the highest amount thus far, reaching almost EUR 6 bn or as much as 11.8% of the total exposure of banks. Around a third of the increase is attributable to the strengthening of non-performing claims, especially claims against the construction sector and financial and insurance services.
In May, the National Assembly adopted a revised state budget for 2012, setting revenue at EUR 7.9 bn and expenditure at EUR 9.0 bn. With the aim to avoid increasing the deficit as was the case in previous years, the revised budget envisages much lower expenditure than the previous budget and 3.7% lower than in 2011. In order to reach this goal, the Public Finance Balance Act (ZUJF) was passed in addition to the revised budget, putting in place a wide array of measures and amending 39 laws. As at the time of the adoption of the revised budget certain ZUJF provisions were still being reconciled, the total cut in expenditure is smaller than planned, which will require additional reallocations of expenditures within the budget. With revenue estimated to be 1.4% higher than in 2011, the revised budget envisages a deficit in the amount of EUR 1,071 m, i.e. 3.0% of the estimated GDP. The decline in the budgetary deficit is in line with Slovenia’s commitments in the Stability Programme – Update 2012, which anticipates consolidation of public finances.
UMAR - Slovenian Economic Mirror: Amid a further deterioration of the situation in the financial sector, economic activity remains modest
