Saturday , January 23 2021

The economic situation in Slovenia is deteriorating again



In the euro area, the economic situation began to deteriorate again at the beginning of the last quarter of this year. As public life has been shut down in many Member States, the Bank of Slovenia expects a significant reduction in activity in the last quarter, but not as pronounced as in the second quarter.

Like the euro area, the economic situation in Slovenia is deteriorating again and the recovery in the labor market has stopped, the Bank of Slovenia wrote in the latest publication of the summary of macroeconomic trends. Government subsidies to companies to maintain employment and help vulnerable groups increase the general government deficit, which is expected to remain above the euro area average, they added.

In Slovenia, the end of the third quarter was encouraging in construction and to a lesser extent in industry and trade.PHOTO: Dreamstime

Current economic indicators suggest that the situation in the euro area is deteriorating again: the Purchasing Managers’ Index fell sharply in November, the gradual improvement in the sentiment indicator ceased in October and companies in trade and other private services are more pessimistic about future demand. Bank of Slovenia.

During the second week of November, electricity consumption decreased by 11.1 percent from year to year. In contrast to the first wave of the epidemic, supply chains for companies have not been disrupted so far, and the Bank of Slovenia expects the decline in euro area activity in the last quarter of this year to be smaller than in the second, but still significant. Growth forecasts for 2021 are also declining, according to the European Commission’s latest forecast, which is expected to reach 4.2 percent.

According to the central bank, the end of the third quarter in Slovenia was encouraging in construction and to a lesser extent in industry and trade. In November, however, the economic situation began to deteriorate sharply again, but according to the available data so far less than in the spring. Confidence in the economy fell sharply in November, but the indicator values ​​are above the May level. Pessimism is pronounced among consumers who expect a marked increase in unemployment and very restrained spending.

The Bank of Slovenia estimates that there is a high probability of a long-term crisis, especially in the services segment, as the most affected part of the economy. Before the crisis, these activities provided about 22 percent of jobs in the domestic economy and created 20 percent of added value, while 25 percent and 19 percent, respectively, in the euro economy. The possibility of faster normalization of the situation, on the other hand, provides rapid progress in the development of covid-19 vaccines and their mass use in a relatively short time.

The Bank of Slovenia estimates that there is a high probability of a long-term crisis, especially in the services segment, as the most affected part of the economy.PHOTO: Thinkstock

Meanwhile, the recovery of health conditions has also stopped the recovery in the labor market, but has not yet increased unemployment. After a sharp decline in registered unemployment in September, it remained broadly unchanged in October. With 83,654 unemployed, it was still higher with about 11,000 people year after year, they pointed out. Despite further operating restrictions, the solid situation continued in November, with the Bank of Slovenia estimating that this was the result of an increase in the number of people waiting for work.

They also pointed out that deflation continues. It was 0.5% in October, where energy prices on an annual basis again made the largest contribution with 1.7 percentage points. With a poor epidemiological picture and tighter restrictive measures, the Bank of Slovenia expects deflationary pressure to intensify again as a result of high uncertainty, unused production capacity and deteriorating labor market conditions.

In the current situation, measures for domestic and foreign fiscal policy are the key to preventing an even greater decline in economic activity, while increasing government deficits, the Bank of Slovenia added. The deficit in the consolidated balance of public funding in Slovenia amounted to € 2.3 billion up to September, while a surplus of € 233 million was achieved during this period last year. The high deficit this year is mainly due to the measures taken by the government to help the population and the economy, they wrote, adding that the deficit will increase due to the resumption of the epidemic at the end of the year.


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