Based on its monthly report for June, the Office for Macroeconomic Analysis and Development – UMAR finds that the outlook for economic growth remain favourable, and most short-term indicators show high interim growth, also at the expense of stronger economic activity in the international environment. At the time of the epidemic, however, exports were less affected than expected, and analysts also expect further growth in line with the vaccination strategy. The situation on the labour market has also improved since last year, as the number of unemployed and employed is almost the same as in the pre-crisis period.
After declining in the first quarter, economic activity in the euro area recovered significantly in the second quarter, according to available economic indicators. The compiled indicator of PMI purchasing managers in May and June indicated a marked reversal of activities in service activities and the continuation of favourable trends in manufacturing. In June, the economic climate in all activities also improved significantly. According to the expectations of international institutions, growth will intensify in the second half of the year due to progress in vaccination: growth of 4.6% and 4.8% is forecasted, and it is expected to be similar next year. Despite the disruptions in global supply chains, the growth of world trade in goods also continued, which is expected to continue in the coming months.
Data on the export part of the economy, which was less affected by the epidemic, show that Slovenia’s export market share in the EU market strengthened further in the first quarter of this year. The volumes of trade in goods and manufacturing output, in addition to the monthly decline, also in May significantly exceeded comparable levels before the outbreak. In June, export expectations also improved again, and the continuation of favourable trends in the export part of the economy is also indicated by the volume of truck traffic on Slovenian motorways and electricity consumption. Interim-wise both were higher, with the former already exceeding the level from the same period in 2019, and the latter is reduced a bit with tourism recovery.
Confidence in manufacturing and construction remained high compared to the previous year. Transitional data on income in trade and services for May and data on sales after tax certification of invoices for June also indicate growth. All this is due to the release of measures in this part of the economy, which has had the effect of improving confidence indicators in trade and services. Consumer confidence is still low, but has been improving in recent months. All this, together with better conditions on the labour market, also indicates higher private consumption. Households have also been wary of spending over the past year due to uncertainty, but while maintaining a relatively high disposable income, the volume of their bank deposits has increased significantly to almost 24 billion euros in May.
The epidemic was closing, but at the same time also opening up new possibilities
In an extended survey by Mastercard, as many as 92 percent of Slovenian entrepreneurs said that the epidemic affected them, many of them strongly. As many as 77 percent of them fell into liquidity problems, and 27 percent of them became insolvent in the period since last March. The problems deepened with the second wave, and many companies changed their strategy to adapt to market conditions and look for new opportunities. “On the one hand, the epidemic has limited the physical operations of companies, both small and large, and on the other hand, it has given them impetus in terms of finding new sales channels, adapting digital presentations of solutions, considering business model suitability and possible adjustments, etc.” it was explained for Delo newspaper in the public agency for the promotion of entrepreneurship, internationalisation, foreign investment and Spirit technology.
With the economy shrinking and demand falling, companies have faced a daunting task, and according to Spirit agency, smaller companies are more flexible in finding new opportunities. Larger companies are more agile in this case, but their advantage over smaller ones is that they can use more of the available resources. “Certainly, falls in demand and consequent adjustments are the most demanding. Even more difficult is the uncertainty about the duration of the situation, which makes it impossible to make the right decisions,” they added. With the encouraging data, Minister of the Economy Zdravko Počivalšek emphasises that the ministry wants to continue maintaining economic growth and will fight to keep the economy open in the autumn. “Vaccination of the population will be of key importance for the recovery of the economy,” said former Minister of the Economy Matej Lahovnik, in addition to Počivalšek.
The situation on the labour market is much better than last year, the number of unemployed and employed is almost the same as before the crisis
Given the seasonal effects, which did not deviate significantly from the pre-epidemic period this year, we associate this with the gradual easing of containment measures and economic recovery. At the end of June, there were 71,094 unemployed people, a fifth less than a year ago and similar to the end of June 2019. The highest interim decline was in the sectors most affected by containment measures – hospitality and other miscellaneous activities; in health and social work, employment increased the most. Due to low unemployment and economic growth, companies face a shortage of suitable staff, especially in logistics, catering, warehousing and other activities. “We are patching up. There are no cooks, waiters, drivers, mechanics, storekeepers,” explained one of the entrepreneurs.
In June, food and service prices remained lower interim, but are lagging behind last year’s levels. Interim growth in semi-durable goods prices remained around the achieved levels, while growth in durable goods prices almost halved compared to the previous month. The contribution of energy prices, which, together with the high interim increase in the prices of petroleum products, contribute the most to current inflation, decreased significantly in June due to the base effect. Interim growth in the prices of industrial products of Slovenian producers intensified in May and was 3.5 percent the highest since 2011. Higher raw material prices contributed the most to growth, of which prices in metal production were up 15 percent interim.
The total consolidated general government deficit in the first five months amounted to 1,266 million euros and was slightly lower than a year ago
As Umar finally defines, revenues were one-fifth higher interim in the first five months, while tax revenues increased mainly with the gradual release of containment measures. Among expenditures, expenditures on wages and current transfers increased the most interim, mainly due to payments for the implementation of measures to mitigate the consequences of the second wave of the epidemic. The net position of the state budget of the Republic of Slovenia in relation to the EU budget was positive in the first five months.