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C-bank says economic outlook worsening, labour market still stable

Ljubljana, 21 October (STA) - The Slovenian central bank has noted that economic outlook has been steeply deteriorating in recent weeks, with services being the most vulnerable sector. The increasing uncertainty is expected to delay companies' decisions to invest, while the situation on the labour market is still favourable due to the government measures.

In its latest Economic and Financial Trends publication, Banka Slovenije focuses on the current situation, as the economic recovery in the eurozone is losing momentum due to the fast deterioration of the epidemiological situation, and on the outlook for the future.

The central bank says that the crisis in the eurozone would have been much deeper without the fast and extensive response of economic policies, with the economic activity indicators worsening again in the May-July period, and the impact of Covid-19 expected to be even worse in the coming months.

In Slovenia, the fast recovery of the economy, which started after the first wave of the coronavirus epidemic was subdued in May, continued in the third quarter of the year, the publication notes.

Supported by intensive economic policy measures, the response by companies to the coronavirus crisis until the autumn was different than during the last financial crisis, as households did not give up on purchasing durable goods, while companies increased their inventories.

Compared to the domestic market, the situation is worse when it comes to international trade, as the recovery stopped during the summer. Travel being more difficult and changes in people's behaviour have hampered the recovery of trade in services, Banka Slovenije adds.

Like in the entire eurozone, economic outlook has been steeply deteriorating in recent weeks. "Being dependent on direct contact between providers and customers, services will again be the most vulnerable, and increasing uncertainty is expected to delay companies' decisions to invest."

While the gross domestic product (GDP) is decreasing and the overall situation is uncertain, the situation on the labour market remains solid for the time being, the central bank assesses.

The reduction in the number of employed persons on the monthly basis stopped in the summer months, and the unemployment rate has been constantly dropping after reaching peak in May.

At the end of September, the number of registered unemployed persons is up by 6,000 compared to the period before the epidemic was declared for the first time, but there is a high probability that the number increases towards the end of the year.

As the stimulus measures have prevented the majority of the GDP drop transferring to the labour market, the central bank says that the 15.8% drop in hours worked year-on-year is a more appropriate indicator of the situation in the second quarter than the 1.9% drop in employment.

Bearing this in mind, the consequences of the new crisis has so far been felt the most by the younger generations and precarious workers.

"The consequences of the pandemic on public finances are extensive, and future fiscal trends are subjected to many uncertainties," the central bank says, noting that the general government deficit in the first half of 2020 was 11% of GDP.

The general government debt was at 78.2% of GDP at the end of June, or 12.6 percentage points more than at the end of 2019.

Nevertheless, borrowing conditions have remained favourable due to a distinctly stimulative monetary policy and a solid macroeconomic position in comparison with many other eurozone members, which improves Slovenia's credit rating.

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