In the euro area, the economic situation started to deteriorate again at the beginning of the last quarter of this year. With the cessation of public life in many member states, the Bank of Slovenia expects a significant decline in activities in the last quarter, but not as pronounced as in the second quarter.
Similar to the eurozone, the economic situation in Slovenia is deteriorating again, and the recovery of the labor market has stopped, the Bank of Slovenia wrote in the last publication of the summary of macroeconomic trends. State subsidies for companies to maintain employment and help vulnerable groups increase the government deficit, which is expected to remain at the eurozone average, they added.
Current economic indicators show that the situation in the euro area is deteriorating again: the procurement managers’ index fell sharply in November, the gradual improvement in the sentiment indicator stopped in October, and companies in trade and other private services are more pessimistic about future demand. Bank of Slovenia.
In the second week of November, electricity consumption fell by 11.1 percent year on year. Despite the first wave of the epidemic, the supply chains of companies have not been broken so far, the Bank of Slovenia expects that the decline in activity in the euro area in the last quarter of this year will be smaller than in the second, but still significant. Growth forecasts for 2021 are also reduced According to the latest forecast of the European Commission, it is expected to be 4.2 percent.
In Slovenia, as the central bank wrote, the end of the third quarter was encouraging in construction, and to a lesser extent in industry and trade. In November, however, the economic situation deteriorated sharply again, but according to available data, less than in the spring. Confidence in the economy fell sharply in November, but the values of the indicators remain above the level of May this year. Pessimism is expressed among consumers, who expect a sharp rise in unemployment and very restrained spending.
The Bank of Slovenia estimates that there is a high probability of a prolonged crisis, especially in the services segment, as the most affected part of the economy. These activities provided about 22 percent of jobs in the domestic economy before the crisis and created 20 percent of value added, while 25 and 19 percent, respectively, were created in the euro economy. The possibility of a faster normalization of the condition, on the other hand, gives rapid progress in the development of vaccines against covid-19 and their mass use in a relatively short time.
The resumption of health conditions, meanwhile, has also halted the recovery in the labor market, but has not yet boosted unemployment. After a sharp drop in registered unemployment in September, it remained virtually unchanged in October. With 83,654 unemployed, it was still higher by about 11,000 people year on year, they said. Despite additional operating restrictions, the solid situation continued in November, with the Bank of Slovenia estimating that this was due to an increase in the number of people waiting for work.
They also noted that deflation continues. In October, it was 0.5%, and energy prices from year to year again gave the largest contribution with 1.7 percentage points. With a poor epidemiological picture and stricter restrictive measures, the Bank of Slovenia expects deflationary pressures to intensify again as a result of high uncertainty, unused production capacity and deteriorating labor market conditions.
In the current situation, domestic and foreign fiscal policy measures are crucial to prevent an even greater decline in economic activity, while increasing government deficits, the Bank of Slovenia added. The deficit of the consolidated balance of public funding in Slovenia amounted to 2.3 billion euros by September, while a surplus of 233 million euros was reached in this period last year. The large deficit this year is mainly due to government measures to help the population and the economy, they wrote, adding that the deficit will increase as the epidemic recovers by the end of the year.