C-bank says measures helping recovery at expense of fiscal situation

Ljubljana – The Slovenian central bank says the anti-crisis measures have contributed to the economic recovery and to keeping the country’s potential afloat, albeit at the expense of public finance situation. A gradual approach and targeted withdrawal of measures will be needed so that the economy is not exposed again to negative shocks.

Such an approach will be needed as the epidemic is expected to slow down, Banka Slovenije adds in its latest review of macroeconomic trends, published on Tuesday.

The report notes that although the country’s GDP dropped by 5.5% in 2020, the situation on the labour market has not deteriorated significantly, and the financial standing of companies and households as a whole has remained relatively stable.

This shows that the measures taken so far have contributed to preserving the predominant part of the economic potential that will be the basis for recovery post-epidemic, the central bank adds.

This comes as Slovenia implemented in the first two months of the year the bulk of the required borrowing for the needs of the national budget – with borrowing in January alone standing at EUR 2.7 billion. Interest rates for the new borrowing were favourable.

The economy is handling the new wave of the epidemic much better than the first one. Affected the most is the hospitality industry, where year-on-year sales in the last quarter of 2020 were down by almost 63%, which is more than in the first wave.

Retail was also seriously affected, as it is facing a 8.1% drop in turnover due to certain limitations, and despite the high growth in online sales. Private services have largely adjusted to the restrictions, the central bank notes.

As for the labour market, the report says that the situation did not deteriorate significantly in the second wave, and that the partial easing of restrictive measures brought the first signs of recovery.

The measures aimed at preserving jobs, whose validity has been extended by the latest legislative stimulus package, have significantly limited unemployment growth.

The number of unemployed increased in December and January only because of the usual seasonal trends, the report says, noting that the jobless total at the peak of the second wave (91,500) was almost 40,000 below the peak of the last economic and financial crisis.