Optimistic spring forecast

UniCredit Bank Slovenija d.d.
Tue, 02/05/2017

The Institute for Macroeconomic Analysis and Development published one of the most optimistic Spring Forecasts in the last ten years                                                                          

Institute for Macroeconomic Analysis and Development (IMAD) envisages GDP growth strengthening to 3.6% this year and then hovering around 3% in 2018 and 2019. At 2.5%, the Slovenian economy recorded one of the highest growth rates in the euro area last year.

What are the reasons for such optimism? 

  1. Export will remain the key driver of economic activity over the entire 2017–2019 period. It will continue to be boosted not only by growth in foreign demand but also competitiveness gains in the tradable sector. The strengthening of growth in foreign demand in 2017–2019 will be mainly due to higher demand on EU markets and, in part, Russia. Export growth is expected to continue across all major groups. Among exports of technology-intensive goods, which accounts for more than half of exported goods, the export of motor vehicles will accelerate the most. Exports of services will also see further growth, primarily on exports of transport and travel services.
  2. Private consumption growth in 2017 (3.5%) will be higher than last year, reflecting a further strengthening of disposable income and consumer optimism, based on increased employment and earnings in the private and public sectors, higher social benefits and the latest changes in income taxation.
  3. Investment activity will rise over the forecasting period, driven by continued significant growth in investment in machinery and equipment and a revival in housing and government investment. Due to EU funds, absorption through government investment is expected to rebound after a fall in 2016. Housing investment will also revive with the recovery of the real estate market, rising incomes and favourable financing conditions. Further growth in investment in machinery and equipment, with 10.8% growth in the last year, will be supported by corporate profits, low interest rates and significantly lower corporate indebtedness.

What are the risks for such optimistic growth?

  1. The risks that arise from the international environment are mainly negative and related to the high level of political uncertainty. The outcome of elections in some of Slovenia’s main trading partners and Brexit negotiations could have a negative effect on the future functioning of the EU. The new US administration’s policy measures are uncertain. Global challenges also exist as oil and other commodity prices could be higher than assumed. If these risks were to materialise, the growth of demand from Slovenia’s trading partners could decline.
  2. In the domestic environment upside risks are predominate. Because of the revival in lending and a more stable business environment, private investment could be even higher than forecasted by IMAD. Private consumption growth could be even higher due to favourable labour market developments.

What are chances that growth is achieved?

The results of first few months of 2017 show that there is a legitimate possibility. Export growth in the first two months was at 8.6% in comparison to the same period in 2016. Industrial production growth in the same period was 3.6%. The number of unemployed decreased by 13.6% in one year. After several years of decline, total loans to the non-banking sector were up in February 2017 for the third consecutive month. Corporate lending recorded growth of 2.4% in February in year-on-year terms.  Household lending continues to strengthen.

And last but not least, Slovenia reduced its general government deficit to 1.5% of GDP last year, having forecast a deficit of 2.2% of GDP.

 

Vanda Močnik Kohek

Senior Relationship Manager

vanda.mocnik@unicreditgroup.si