Central bank says economy shows signs of recovery

Ljubljana – All sectors in Slovenia that are not under direct impact of coronavirus restrictions recovered in the first quarter of the year, the country’s central bank says in its latest publication Economic and Financial Trends. Data shows signs of moderate although uneven economic growth, and the labour market situation remains stable.

The share of sectors that were hit hard has dropped, which Banka Slovenije analysts say shows that companies have adapted well to the difficult coronavirus situation.

When the epidemic peaked in the last quarter of 2020, the sectors suffering a drop in added value represented 31% of GDP, down from 76% in the first wave last spring.

Banka Slovenije says that this year’s first quarter showed signs of moderate albeit uneven economic growth, with industrial output and foreign demand growing and the construction sector recovering as investments rise. The analysts also see a great potential for growth in private consumption.

However, a stricter lockdown in early April suspended or delayed the recovery in some services sectors, while businesses are optimistic about demand in the second quarter.

The situation on the labour market is relatively favourable as a result of economic stimulus measures, yet considerable uncertainties remain.

“To prevent a worsening emergency measures will continue to play a key role, as the furlough scheme in particular strongly cushions a drop in employment.”

The analysts, however, warn that differences between various groups of workers have increased.

“Employment in retail and hospitality decreased considerably, particularly in the second wave, by 15% in January year on year, while increasing by 5% in health care and social care.”

There are also considerable differences in pay growth, with the public sector outpacing the private sector as a result of epidemic bonuses.

January’s average pay in health care and social care increase by 42% annually, as opposed to a mere 3.2% growth rate in the private sector.

Price trends remain weak despite the deflation period ending in March, which was mostly on account of higher fuel prices.

Companies, households and banks entered the last crisis in a better financial shape, but Banka Slovenije says a major change in financial patters has occurred.

While the general government sector witnessed a considerable rise in borrowing to finance emergency measures, companies and households enhanced their savings drive. This resulted in more deposits, which banks then transferred on to the central bank.

“In 2020, financial investments and liabilities of banks thus witnessed the highest annual rise in the last ten years,” the central banks says.