By: Tanja Brkić (Nova24TV.si)
During Janša’s government, Slovenia reportedly achieved its highest GDP growth in the last ten years, but today it has fallen below the European average. Discrepancies in GDP calculations from one estimate to another are not uncommon, according to experts, but the current enormous deviation of three percentage points stands out. When responding to our question, the Statistical Office of the Republic of Slovenia (SURS) did not provide any specific reason for such a significant discrepancy. According to economist Dr Igor Masten, this “error” will have a significant impact on future analyses needed for forecasts by various institutions.
The huge difference in GDP calculations, which should have already prompted SURS to sound the red alarm, is even considered by the left-leaning mainstream media, which have so far praised the current government. Although differences in calculations are not uncommon, this time the measured difference is a whopping 3 percentage points. From 5.4 percentage points, measured in February, the latest GDP growth calculation is 2.5%, which places Slovenia below the EU average in terms of growth. SURS has not explained where the discrepancy occurred, but it will certainly have consequences for fiscal and social policy.
“This ‘correction’ of last year’s GDP is to say the least unusual. How is this possible, @govSlovenia @StatSlovenia @BankaSlovenije? What impact will this have on budget planning?” wrote SDS leader Janez Janša in response to the situation.
Last year’s GDP growth was significantly lower than initial estimates, and much slower compared to the post-pandemic 8.2% growth in 2021. Under Golob’s government, Slovenia’s economy is performing much worse than under the previous Janša administration when GDP was growing according to all calculations. Slovenia’s GDP per capita reached 90% of the European country average, and “in 2021, it achieved the highest value of this indicator in the past decade”, according to the statistical office. Now, given the new GDP growth calculation, which is an obvious indicator of Slovenia’s steep decline, the statistical office should be sounding all alarms.
“There has obviously been an unusually large mistake or revision, and this unusually large mistake is both in terms of time and space,” said economist Dr Igor Masten, referring mainly to the “unusually large mistake” compared to other revisions in other countries that also experienced the epidemic. In his view, the significant deviation is a result of inaccuracies that arose in considering inflation, or rather, underestimating it, and the result of allegedly inaccurate methodology, although, as he claims, “this is a matter for the Statistical Office itself”. “Such large revisions, this is really unusual because it causes huge problems for the work of many institutions, such as UMAR and the Bank of Slovenia, which use such information, like this one, for their further forecasts, especially in the preparation of budget assumptions,” said Masten, who is convinced that this issue has no political background. Masten believes that this is not the last revision, and he thinks it is primarily a methodological problem, and now they need to re-examine everything.
SURS says it was not a mistake
For information on why there was such a deviation, we also contacted SURS directly, which did not provide specific reasons for such a significant discrepancy. In an email, they stated, “there was no error in the calculation and publication of GDP data last week. Revisions of national accounts are carried out regularly (as prescribed by European regulations), and this time we conducted a regular revision as well. The original estimate of last year’s economic growth from February 2023 was made by combining quarterly data based on the data sources available at that time, and now we have also taken into account subsequently obtained annual data, which are more complete and detailed than the data sources for quarterly estimates. This is an eternal compromise between faster publication (based on quarterly data sources) and greater reliability of estimates (based on later annual data sources).”
Economist Dr Anže Burger says that the deviation was due to data incompleteness, and it is also a consequence of significant increases in the prices of essential goods and changes in prices in general since 2021. “It is important that we now have a clear picture that inflation is causing significant costs not only for consumers but also for economic policy makers. If politicians and the public sector have such incorrect information, with economic growth data overinflated by more than double, it can be a problem for fiscal and social policy,” Burger explains.
UMAR: “there has never been such a big change before”
UMAR explained that “the publication of annual data always brings a change in the calculation (compared to the February publication based on quarterly data), due to a larger data set. However, such large changes have not occurred before and have surprised us. Last year, the GDP growth data surprised us upward, especially in the segments of private consumption and construction. A lower growth rate on certain aggregates was expected to some extent after the publication of AJPES data on the performance of business entities in 2022, but not to this extent,” they wrote. They also mentioned that this has resulted in some substantive changes in the interpretation of past economic movements, especially in the mentioned areas. The institute is preparing its regular autumn forecast, which is expected to be published in mid-September.
SURS further stated that “this time the revision of the GDP growth estimate is still larger than in previous years, contributed to by the conditions of greater dynamics in price movements. Quarterly estimation, due to limited data sources, is based on the so-called single deflation of value-added, while annual estimation relies on deflation and estimation of the growth of more detailed components of value-added. The revision of the GDP estimate affects the presentation of indicators that use GDP in the denominator of the fraction, e.g., the government sector deficit in relation to GDP was originally estimated at 3.0 percent of GDP for 2022, and is now estimated at 3.1 percent of GDP, even though the amount of the deficit has not changed.”
Hard times are coming
“How the media portrays the development catastrophe as a “mistake” when there is a left-wing government. This means that all the calculations underlying the waste of taxpayers’ money by the Golob government were wrong. Hard times are coming, inflation, higher taxes. A disaster,” SDS member of parliament Branko Grims responded to a so-called “error in the calculation”, predicting difficult times ahead.
GDP and GDP growth are indicators of the overall state of the economy. When GDP growth is high, the economy is considered successful. Conversely, when GDP contracts, the effect is the opposite: companies cut costs, some lay off employees, and higher unemployment leads to lower overall consumption in the economy. This leads to a contraction of economic activity, and it can even result in negative growth. If negative GDP growth is present for two consecutive quarters, it is considered a recession.
Fiscal Council has not commented on the matter yet
We also reached out to the Fiscal Council, which has not provided a response as of now. It is worth noting that Golob’s government has faced criticism from the Fiscal Council in the past, particularly regarding unrealistic budget revisions. The state budget had a deficit of 413 million euros in the first six months of this year. The deficit in June was 190 million euros. The general government deficit in the first quarter of this year was 3.6 percent of gross domestic product (GDP), which was higher than in the same period last year and higher than the EU average.
The Fiscal Council stated in its semi-annual publication in July that cash flow data indicated a continuation of similar trends in the remaining part of the first half of 2023, including the second quarter. The deficit of the state budget at the end of the first half of the year was approximately 300 million euros higher than in the same period last year. It is important to note that under the current government, several new taxes have been introduced, and the income tax reform introduced during the Janša government, which reduced the tax burden on salaries, has been repealed. Additionally, excise taxes are higher than under the previous government. Despite these increased revenues, they could not compensate for the excessive spending of the current government. It should be emphasised that a significant portion of the funds has been allocated to the government’s supporters and various reforms that were not thoroughly planned.