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Slovenian Economic Mirror 4/2021: The second quarter brings more favourable prospects for economic activity in the remainder of the year and a gradual recovery of services

In the first quarter, economic activity in the euro area contacted somewhat relative to the previous quarter, but the outlook remains favourable. As containment measures are set to relax gradually, international institutions forecast a pick-up of activity in most euro area countries in the second quarter. After a long period, activity growth was also indicated by the indicators for the service sector. In Slovenia, growth in export-oriented activities continued. Services also started to rebound. 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 in the first quarter of this year. With a gradual relaxation of containment measures, household consumption picked up substantially in February and March. With the opening of most shops, the lifting of the ban on movement between municipalities and the compensation of foregone purchases, particularly household expenditure on non-food and food products and motor vehicles increased in February and March. Labour market conditions remain tight but they are gradually improving. The number of employed is lower than in the same period before the epidemic. The largest fall in employment was in accommodation and food service activities and administrative and support service activities. The number of registered unemployed fell further in April, amounting to 79,285 persons at the end of the month, but remained higher than before the epidemic. In April, inflation rose for the second consecutive month, again mainly due to higher prices of energy. Due to limited economic activity and measures to contain the epidemic, the deficit of the consolidated general government budgetary accounts increased significantly in the first quarter of this year, amounting to EUR 1.3 billion.

In the first quarter, economic activity in the euro area contacted somewhat relative to the previous quarter, but the outlook remains favourable. Due to a rise in COVID-19 infections, many euro area countries extended or tightened containment measures at the beginning of the year, which restricted particularly service activities, while their impact on manufacturing and construction was limited. Among the largest euro area economies, which are also our most important trading partners, in the first quarter activity was affected the most in Germany (-1.7%), where the stringent containment measures weakened particularly private consumption. As containment measures are set to relax gradually, international institutions forecast a pick-up of activity in most euro area countries in the second quarter. The indicators of economic sentiment and confidence (ESI, PMI) mostly improved in April, reaching the highest levels since the beginning of the epidemic, some of them even record highs (e.g. PMI for industry). After a long period, activity growth was also indicated by the indicators for the service sector. 

In Slovenia, growth in export-oriented activities continued; services also started to recover. 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 in the first quarter of this year. Goods exports to EU countries increased further compared with the previous quarter, as did manufacturing production. With the relaxation of some containment measures, service activities started to recover in February, although some of them remained strongly affected. In February, turnover increased in all market services including accommodation and services activities, but remained considerably lower than before the epidemic. After strengthening in the second half of last year, activity in construction fell in February, particularly in non-residential buildings. The tightening of containment measures at the beginning of April again mainly affected service activities, but data on fiscal verification of invoices indicate that turnover rebounded and exceeded last year’s levels in the second half of the month. The export part of the economy was again less affected by containment measures, judging by weekly data on freight traffic and electricity consumption.

 

 

With a gradual relaxation of containment measures, household consumption picked up substantially in February and March. With the opening of most shops, the lifting of the ban on movement between municipalities and the compensation of foregone purchases, particularly household expenditure on non-food and food products and motor vehicles increased in February and March. Higher household spending, amid a partial relaxation of measures, was also reflected in lower household deposits in banks; loan volume also rose slightly. However, turnover in service activities that remained mostly closed (especially accommodation and food service activities and arts and entertainment activities) fell further year on year in the first quarter according to data on fiscal verification of invoices. The year-on-year decline otherwise decreased in March compared with January and February due to last year’s low base and some additional relaxations, even turning to growth in some services. 

Labour market conditions remain tight but they are gradually improving. In April, registered unemployment fell further, amounting to 79,285 persons at the end of the month, which is 4.1% less than at the end of March and 10.6% less than a year earlier. Employment, down 1.4% year on year in February, has remained at a similar level since May 2020. The largest year-on-year fall in employment was in accommodation and food service activities and administrative and support service activities, which were hit hardest by containment measures, while the largest increase was in health and social work, owing to the increased needs during the epidemic. The number of employed is lower than in the same period before the epidemic, while the number of unemployed is higher. 

Consumer price growth rose significantly in April for the second consecutive month. The main reason was year-on-year higher energy prices, mainly as a consequence of record low oil and oil product prices on world markets in April 2020 and government measures, which temporarily exempted certain consumers from paying contributions for electricity consumption. In March, year-on-year growth in Slovenian industrial producer prices also strengthened significantly (on both the domestic and foreign markets); import prices were also higher. 

Due to limited economic activity and measures to contain the epidemic, the deficit of the consolidated general government budgetary accounts increased significantly in the first quarter of this year, amounting to EUR 1.3 billion. The bulk of the deficit derived from a significant increase in expenditure, mostly due to the anti-coronavirus packages of measures to mitigate the consequences of the epidemic (EUR 830.7 million), which increased particularly funds for wages, transfers to individuals and households, and subsidies. Expenditure was 21.5% higher year on year, while revenue exceeded last year’s level by 3.3%. Amid wage growth, which was boosted particularly by the payment of allowances during the epidemic, revenues from social contributions and personal income taxes rose year on year; non-tax revenues were also higher. Owing to limited activity and deferred tax payments and lower advance payments, revenue from value added tax fell the most of all tax revenues.
 

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