The Slovenia Times

C-bank says Q3 growth expected, new drop projected for last quarter


Ljubljana - The central bank commented on the noticeable increase in Slovenia's GDP in the third quarter on the quarterly basis by saying that the rebound was expectedly strong following the relaxation of coronavirus measures. It has meanwhile warned that a drop in economic growth is to be expected in the final part of the year.

As the Statistics Office reported on Monday a 12.4% quarterly increase in GDP in the third quarter, Banka Slovenije said that the "rebound in economic growth was expectedly strong following the relaxation of coronavirus measures and comparable to the eurozone."

The central bank noted that differences in recovery among industries were significant, but this was something characteristic of a majority of other eurozone members.

The conditions were favourable in construction, and the situation in manufacturing also improved as the conditions in supply chains normalised and foreign demand grew stronger.

On the other hand, the conditions remained the most difficult in the services sector, as it is linked to social contacts and international tourism, Banka Slovenije added.

The central bank said that while a majority of activities had recorded an improvement, the pace of recovery had already slowed down in the third quarter.

"Banka Slovenije expects that, as public life has again ground to a halt, a significant drop in activity will be recorded again in the last quarter of the year, but less pronounced than during the first wave of the epidemic."

Slovenia's economy is thus expected to shrink in the fourth quarter, although at a lesser rate than in the second quarter.

Banka Slovenije assessed that there is a high probability of a long-lasting crisis in the services sector. It noted that this sector had accounted for around 22% of all jobs and 20% of added value before the crisis.

On the other hand, companies in manufacturing remained optimistic in November when assessing demand.

"This is connected with the maintenance of supply chains, better readiness to operate in the epidemic and stronger foreign demand compared to the first wave," the central bank concluded.

IMAD, the government's macroeconomic think tank, said the GDP in the third quarter had recovered more than expected, adding that the year-on-year drop had been mitigated by a fast recovery in exports, manufacturing and certain services.

But like the central bank, IMAD too expects a repeated drop in activity in the last quarter, with "consequences primarily focused on the services sector and less on activities connected with international trade."

It is indicated for the time that the drop in a majority of segments will be smaller than in the spring, as companies and consumers have adapted to the new reality."

An equal or even a larger drop than in the spring is meanwhile expected in the hospitality industry and entertainment, sport, recreation and personal services, said IMAD director Maja Bednaš.

She added that, as regards potential recovery in 2021, this was likely being moved up towards the second quarter. "Everything will depend on the epidemiological situation, introduction of vaccines and ... measures to mitigate the consequences."

The Economy Ministry said in its response that the economic activity was impacted by the epidemic and related restrictive measures, adding that it was making effort to secure liquidity and development funds for companies from EU instruments.

The goal is to encourage a new cycle of investments and digitalisation of the economy, as well as to stimulate domestic consumption and decentralise investment decisions also to underprivileged areas, the ministry added.

The Chamber of Commerce and Industry (GZS) is positively surprised by the GDP figures in the third quarter, with its chief economist Bojan Ivanc saying that the "fast and strong recovery of domestic demand was the key".

Like the central bank and IMAD, the GZS too expects a decline in activity in the fourth quarter of around 7.5% compared to the same period last year and keeps its forecast of a 6.5% drop in GDP for Slovenia in 2020.

"December is the key month for consumption, so the final GDP dynamic will very much depend on whether restrictive measures will be introduced or relaxed. Our baseline scenario envisages the extension of the current restrictions until the year's end," the GZS said in a release.


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