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Saturday, January 28, 2023

This year, a third of the world will be in recession, but how will Golob react to this?

By: Gal Kovač / Nova24tv.si

The coming year will be “more difficult than the year we are leaving behind,” predicts the executive director of the International Executive Fund, Kristalina Georgieva. According to her, the reasons are to be found in the three largest generators of global economic growth, the USA, the EU, and China, all of which are facing reduced economic activity in turn. As a result of the simultaneous recession, the IMF expects that “a third of the global economy will face a recession”, and even those countries that manage to avoid the recession will not escape the damage. “Hundreds of millions of people will feel like they are in a recession,” said Georgieva.

Already in October, the IMF published the first forecasts of global economic growth in 2023, which found the causes of the global slowdown in growth mainly in the war in Ukraine, inflation, and high interest rates. Due to the mentioned set of factors, the IMF predicts that for the first time in the last 40 years, China’s economic growth will be equal to or even lower than the average global economic growth. New waves of infections with the covid-19 virus will also contribute to the poor economic growth of China and thus the world. Let us remind you that China is being shaken by new waves of the epidemic after it loosened some restrictive measures due to pressure from citizens.

“The next few months will be very difficult for China, and this will have negative consequences for their economic growth, the impact on the region will be negative, the impact on global growth will be negative,” said Georgieva. On the other side of the Atlantic, we have the United States, which, in her opinion, is more resilient and may still be able to avoid recession. One of the positive indicators is the labour market conditions, which are still good in the US, but can also be a double-edged sword. Indeed, these could lead the US FED to consider that it is expedient to keep high interest rates longer, which would delay the economic recovery.

The basis for this will be the following: if the FED notices that the need for labour in the US will decrease, this will be an indicator that price growth will also decrease due to the resulting lower demand. This trend has not yet been observed, as 200,000 new jobs are expected to be created in the US in December alone, and unemployment remains at a record low level of 3.7 percent.

Georgieva also added that if the US fails to avoid recession, one third of the world will feel it.

How will Golob’s anti-reforms affect economic growth?

After Slovenia recorded an exceptional economic growth of more than 8 percent in 2021 under the government of Janez Janša, this year it significantly decreased. We still grew by 5 to 6 percent, but a complete slowdown is expected this year, which should not exceed one percent. The Institute for Macroeconomic Analysis and Development IMAD predicts that the slowdown in growth will mainly be hindered by the uncertain situation in the international environment and inflation, which reduces the purchasing power of the population and consequently also reduces private consumption.

The government of Robert Golob will certainly contribute negatively to the reduction of economic growth and private consumption. Since his inauguration, he has adopted a series of anti-reforms, starting with a new agreement with motor fuel sellers, the end result of which was a drastic increase in the prices of petrol and diesel. This was followed by an intervention in the field of food products, which apparently did not bring any improvements. Golob’s government wanted to force the sellers of food products in a “soft way” to lower prices, by ordering the creation of a website that records the fluctuations in the prices of products from different sellers. The project has been plagued by methodological problems since the beginning, and the price of food remains high and contributes significantly to overall inflation, which amounted to more than 10 percent this year.

Extremely high electricity prices, which are crippling both the economy and households, will certainly contribute to the drastic reduction in economic growth. In the last quarter alone, the price of electricity rose by 31 percent, and the price of natural gas by 22 percent. Golob’s economic aid package was characterised as insufficient, and above all, it expressed disappointment at the lack of an essential measure – price regulation, which would “clip the wings” of electricity resellers, as some vividly expressed it. However, the government of Robert Golob was that much more generous towards the Holding of Slovenian Electric Power Plants, where the Prime Minister appointed his own wedding witness Tomaž Štokelj as the head, and shortly after that granted the company a state guarantee of 500 million euros. You can read more about the drastic increase in energy prices here: Due to the brutal increase in the prices of electricity and natural gas, this December is much less happy.

The tax reform mainly attacked the poorest

The amendment to the Income Tax Act, which, with the exception of some tax reliefs aimed at young people and families, will certainly have a direct impact on the private consumption of individuals, which reduces the available income of all groups of the population, both the rich and the poorest. Due to the negative consequences of the law, its implementation first got stuck in the National Council, which vetoed the law. Soon after that, the SDS and NSi parliamentary groups decided on the initiative of almost all farmers’ and economic estate associations, to address a request to the Constitutional Court for an assessment of the constitutionality of the law. You can see how much your income will be lower because of Robert Golob’s government here: The dance has begun! Golob’s coalition passed the Income Tax Act, which will lower everyone’s wages.

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