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Slovenian Economic Mirror 3/2021: Relatively favourable movements in the export-oriented part of the economy continue; some service activities remain severely affected

The export-oriented part of the Slovenian economy was not notably affected due to the deterioration in epidemiological conditions at the end of last and the beginning of this year; export market share strengthened significantly in the last quarter of last year. In the first two months, household consumption was still lower than a year earlier, but in March it picked up significantly according to data on fiscal verification of invoices and reached pre-crisis levels. The decline in domestic demand during the epidemic, together with energy prices, had a strong impact on the movement of consumer prices, as well as on the widening of the current account surplus. The decline in the number of registered unemployed persons strengthened somewhat further in March. At the beginning of the year, employment otherwise fell the most year on year in accommodation and food service activities and administrative and support service activities, which were hit hardest by containment measures, while it rose the most in health and social work. This segment also recorded the largest year-on-year increase in wages, particularly due to allowances for hazardous working conditions and additional workload. As a consequence of measures to mitigate the impact of the epidemic, the deficit of the consolidated general government budgetary accounts was significantly higher year on year at the beginning of the year. Economic prospects for the international environment are improving gradually. With the continuation of considerable monetary and fiscal policy support, euro area economic activity should grow by 4.4% this year and by 3.8% in 2022, according to the IMF forecast. The IMF assumes that in the first half of the year, economic activity will still be affected by high infection rates, the spread of virus mutations and thus the extension or tightening of containment measures, but then it should strengthen with a gradual easing of containment measures due to higher vaccination coverage.

The available indicators show that with the renewed tightening of containment measures, euro area economic activity contracted somewhat again at the quarterly level in the first quarter of the year. Many euro area countries extended or tightened containment measures due to the rise in COVID-19 infections at the beginning of the year. According to the available economic indicators, containment measures did not have a noticeable impact on manufacturing but continued to impede activity in the service sector, which most likely contributed to a moderate contraction of activity overall. At the beginning of April, the IMF otherwise upgraded slightly the January forecast for economic growth in the euro area. After last year’s 6.6% fall, euro area GDP should grow by 4.4% this year, amid the continuation of considerable monetary and fiscal policy support, and by 3.8% in 2022. The IMF assumes that in the first half of the year economic activity will still be affected by high infection rates, the spread of virus mutations and the related extension and tightening of containment measures, but then it should start to strengthen with a gradual easing of containment measures due to higher vaccination coverage. 

Household consumption in Slovenia was lower year on year in the first two months, but in March it picked up significantly, according to data on fiscal verification of invoices, and reached pre-crisis levels. With the opening of some shops and services and the lifting of the ban on movement between municipalities, particularly household expenditure in retail sales of non-food and food products and for some personal services increased in February at the monthly level, though remaining lower year on year. The large year-on-year fall in household expenditure continued in those service activities that remained mostly closed (in particular in accommodation and food service activities and arts and entertainment activities). According to data on fiscal verification of invoices, in March sales rose significantly year on year due to the base effect and also exceeded the level seen in the same period of 2019. This is attributable to the increased sales before the renewed closure of some shops, a different distribution of Easter holidays and two working days more than in the same period of 2019. The savings rate remained high at the beginning of the year amid stable disposable income, and households continued to make significant repayments of consumer loans amid modest borrowing. 

The export-oriented part of the economy was not notably affected by the deterioration in epidemiological conditions at the end of last and the beginning of this year; export market share rose significantly in the last quarter of last year. After falling due to the first wave of the epidemic, Slovenia’s export share on the global market increased in the last quarter of 2020, according to preliminary data. In the last quarter, Slovenia’s market share also strengthened more noticeably in the EU, which accounts for around three-quarters of Slovenia’s exports of goods. The relatively favourable developments in the export-oriented part of the economy, which had reached pre-crisis levels at the end of last year, continued at the beginning of the year. After the increase in January, manufacturing output remained at a similar level in February. Goods exports to the EU rose. In March, confidence indicators indicated a continuation of favourable developments in the export-part of the economy. This is also corroborated by data on the volume of freight traffic on Slovenia motorways, which was a tenth higher in March compared with the pre-crisis year 2019.

The fall in domestic demand during the epidemic, together with energy prices, had a strong impact on the increase in the current account surplus and the movement of consumer prices. Growth was mainly driven by higher prices of energy, as electricity prices were significantly higher year on year due to their considerable fall at the beginning of the first wave of the epidemic. The year-on-year fall in oil product prices also slowed significantly due to current oil price growth and a lower base. The fall in prices of semi-durables also strengthened further, mainly as a consequence of the movement of clothing and footwear prices. Prices of durable goods and services were also down in March. 

The decline in the number of registered unemployed persons strengthened somewhat further in March. At the end of the month, 82,638 persons were unemployed, 6.1% less than at the end of February and 6.1% more than a year earlier. At the beginning of the year, employment fell the most year on year in accommodation and food service activities and administrative and support service activities, which were hit hardest by containment measures, while it rose the most in health and social work. This segment also recorded the largest increase in wages compared with the same period of last year, particularly due to allowances for hazardous working conditions and additional workload. In comparison with a relatively significant wage increase in the public sector, wage growth in the private sector did not rise in the second wave of the epidemic. The only exception was the increase in December, due mainly to the payment of Christmas bonuses and 13th-month pay, while at the beginning of the year wage growth was again somewhat lower year on year.

As a result of measures to mitigate the impact of the epidemic, the deficit of the consolidated general government budgetary accounts also increased strongly at the beginning of the year. In the first two months, it amounted to EUR 633 million. The bulk of the deficit derived from significantly increased expenditure, largely due to the temporary measures to mitigate the consequences of the epidemic, which strengthened particularly subsidies, transfers to individuals and households, and funds for wages. Revenue in this period was close to last year’s level. Some tax revenues declined due to limited economic activity and deferred tax payments and lower advance payments, while revenues from social contributions and personal income tax were higher year on year amid wage growth, as were non-tax revenues.
 

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