Slovenia’s economy has been hammered hard by the coronavirus pandemic and the ensuing lockdown with fresh data from the Statistics Office showing the country’s output contracted by 13% in real terms in the second quarter compared with the same quarter a year ago. The second straight quarter of negative growth puts Slovenia in a technical recession.
Seasonally adjusted GDP decreased by 9.6% compared with the first quarter, and by 12.9% year-on-year. This means that the country’s economy shrunk at an annual rate of 7.9% in the first half of the year.
Revised data from the Statistics Office show the seasonally-adjusted annual rate of decline in the first quarter, at the end of which Slovenia declared the epidemic and put public life on hold, was 3.7%, which compares to an earlier estimate of 3.4%.
The year-on-year contraction posted by Slovenia in the second quarter is somewhat lesser than the average for the eurozone and the EU running at -15.0% and -14.1%, respectively.
Fresh statistics show the country’s shutdown imposed in mid-March had the biggest impact on domestic consumption, which slumped by 12% due to a 11.8% drop in final consumption expenditure and a 12.8% fall in gross capital formation.
Household final consumption expenditure slumped by 16.6%, of which 21.2% on the domestic market, with the highest decrease seen in consumption of fuels and services.
Gross fixed capital formation declined by 16.7% as construction investment decreased by 14.1% and investment in machinery and equipment slumped by 26.2%.
Due to a slump in external demand, exports fell by 24.5% compared with the second quarter of 2019; exports of goods decreased by 21.9% and exports of services fell by 35%.
Imports declined by 25%. Like in the case of exports, the slump in services was mainly observed in the travel industry.
The value added also declined, in particular in the hospitality sector, but the biggest negative impact was from manufacturing, said Romana Korenič from the Statistics Office.
Employment also fell in the second quarter, with the total of those in employment falling by 2% year-on-year to 1,023,200. Hit hardest were administrative and support services, manufacturing, and accommodation and food service activities.
On the upside, the situation started to improve in swathes of the economy the third quarter of the year, judging by macroeconomic data and survey among businesses and consumers.
Considering forecasts by domestic and international institutions, Slovenia’s economy is not expected to contract by more than 8% this year, provided there are no new major shocks.
Signs of improvement were also noted by the Slovenian central bank in its response to the contraction in the output in the second quarter, which it said had been expectedly strong.
It said available data such as electricity consumption, tax revenue, the purchasing managers’ index or business confidence suggest a considerable economic recovery in the summer.
As the coronavirus crisis set in, the central bank forecast a contraction of between 6% and 16% for the year depending on which of the three scenarios it had proposed would unfold.
“The current situation in the economy indicates the fall in the economic growth this year will be closer to the less adverse scenario, that is in accordance with our central forecast (of -6.5%),” said Banka Slovenije.
However, the central bank also noted that the situation is uncertain and that the recovery will largely depend on the development of the coronavirus pandemic and on how countries respond to a potential major outbreak.
“Due to the uncertainty, companies will keep postponing investment and households will remain cautiously frugal,” a release from Banka Slovenije reads.
Similarly, IMAD, the government macroeconomic think-tank whose forecasts serve as a basis for state budgeting, said the contraction was within its expectations, with an improvement expected in the third quarter.
Noting that business sentiment and consumer confidence have been picking up since May, IMAD said they were still below the levels seen prior to the global coronavirus outbreak.
“In the third quarter we can expect a quarterly improvement or a lesser year-on-year decline in economic activity. With the presence of the virus and a new increase in infections in recent weeks, the situation remains uncertain, thus further fluctuation in economic activity is expected,” commented IMAD director Maja Bednaš.