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The Economic Climate Remains Favourable

Slovenia has received some encouraging data on its way through the epidemic and in its transition from it. This year, despite the epidemic and the restrictive measures that resulted in the closure of certain economic activities, the employment activity remained quite high and was only 1.4 percent lower compared to February last year, when there was no epidemic in Slovenia yet. The positive economic climate grew even higher later in the year and is now 0.5 percentage points higher than the long-term average. The value of the economic climate indicator was 36.9 percentage points higher in April 2021 than in April 2020, which shows the very good condition of the economy, especially considering the situation. It also proves the fact that the state took appropriate measures and also made sure that the most important ones stayed in force.

The covid-19 epidemic strongly marked the Slovenian economy and significantly affected the quality of life of the people in 2020, but it also brought along some new opportunities. The crisis caused by the effects of the covid-19 epidemic disrupted several years of economic activity and favourable labour market developments, with government measures significantly mitigating the effects of the epidemic on the economy and the population.

In February 2021, the number of actively employed persons in Slovenia increased by slightly more than four thousand or 0.5 percent compared to the previous month, while compared to the same month last year, it decreased by 1.4 percent, which is extremely little, given that the economy was still in full swing last February. Compared to January 2021, the number of employed and self-employed persons increased, the former by 0.5, and the latter by 0.2 percent. Compared to February 2020, the number of the former decreased by 1.6 percent, and the number of the latter increased by 0.4 percent. The data in question shows a positive picture of the activity in the economy and the employment of the population of Slovenia, as, despite the epidemic, the population’s work activity is increasing.

The number of employed men in February 2021 increased by 0.5 percent compared to January 2021, and the number of employed women increased by 0.4 percent. Compared to February 2020, the number of both decreased; however, the number of women who are employed decreased more (by 1.5 percent) than the number of men who are employed (by 1.3 percent). In February 2021, on the monthly basis, the number of employed persons increased in all statistical regions (referring to the region where the place of employment is located). It increased the most in the central region, and in it, it grew the most in the construction sector (by about two percent). The number of employed persons increased the most in construction (by 1.7 percent) and decreased most in the restaurant business (for 0.3 percent). With the reopening of services, greater work activity in the latter is also expected.

In order to mitigate the economic consequences of the epidemic on the labour market, several measures were adopted in 2020 with the intention of preserving jobs
Both in Slovenia as well as in other countries of the EU, the main measures for maintaining jobs were temporary leave and changing from full-time to part-time work. In addition, companies in Slovenia were exempted from paying the pension insurance contributions for all employees who worked during the epidemic. The measures were aimed at reducing labour costs, which often account for a large share of companies’ costs, thus increasing the chances of retaining jobs and employees until a period when economic activity would be boosted again.

The positive climate in the economy continues to rise and is 0.5 percentage points higher than the long-term average
According to a report issued by the Statistical Office of the Republic of Slovenia in April 2021, the value of the sentiment indicator was 0.2 percentage points higher than in March 2020 and 0.5 points higher than the long-term average. The monthly change in the economic climate was positively affected by confidence indicators in retail trade (the number grew by 0.8 percentage points), the service sector (0.2 percentage points), and in construction (by 0.1 percentage points). However, this impact was almost offset by the lower monthly values of the confidence indicators in manufacturing (lower by 0.5 percentage points) and among consumers (lower by 0.4 percentage points).

The value of the economic climate indicator was 36.9 percentage points higher in April 2021 than in April 2020, when the world and Slovenia were shaken by the covid-19 epidemic. At the annual level of the economic climate, the confidence indicator showed the most results in manufacturing (18.8 percentage points), in the service sector (11.2 percentage points), among consumers (2.9 percentage points), in construction (2.2 percentage points), and in retail trade (1.8 percentage points).

In Slovenia, we also entered the epidemic in 2020 with some unresolved development challenges, which further deepened with the epidemic, and many also increased Slovenia’s vulnerability during this period, despite the fact that we achieved record employment and were on a good path of developmental recovery from the financial crisis. The government measures that were adopted in order to contain the covid-19 epidemic have prevented a decline in household disposable income, helped keep the economy on a good level, and also contributed to the level of employment not decreasing drastically.

During the epidemic, the highest amount of funding (slightly less than three percent of GDP) was allocated by the government for the payment of contributions for the employees, for the financing of salaries for those on temporary leave, and for the subsidisation of part-time work. Approximately 1.4 percent of the GDP was earmarked for the operating of public services (provision of funds for The Health Insurance Institute of Slovenia, benefits for the employees, material costs for controlling the epidemic). Approximately 0.8 percent of GDP was earmarked for maintaining consumption and the social position of the population of Slovenia, while about 0.2 percent of GDP was earmarked for supporting companies with fixed costs.

In addition to maintaining the good condition of our economy, the government measures also prevented the decline in disposable household income. After accelerating economic growth in the period from 2016 to 2019, the gross disposable income of households increased further in 2020, despite the decline in economic activity, which was mainly the result of government measures adopted to mitigate the effects of the epidemic.

In the recovery phase, it will be crucial to strengthen investments and ensure the relevant skillsets
According to the Institute for Macroeconomic Analysis and Development of the Republic of Slovenia, we will have to strengthen the investment activity in the recovery phase and compensate for the lack of relevant knowledge and skills of the future. Due to the high number of young people only being temporarily employed, their unemployment increased above average in 2020. To this end, the government has proposed amendments to the law that would reduce the contributions of individuals who would be employed for the first time, making them more of an asset in the labour market and for the employer.

Accelerating productivity growth will be crucial for higher gross domestic product growth in the coming years, and in relation to this, the Institute for Macroeconomic Analysis and Development highlighted the strengthening of research and development, as well as innovation, with a stronger focus on breakthrough innovation, faster digital transformation through the introduction of new business models, and the introduction of smart factories and other demanding technologies, and greater investment in human resources and staff development, including easer transition to jobs with higher added value, and lower carbon footprint.

Sara Rančigaj

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