Release date 29 Jan 2021

A gradual reduction in restrictiveness measures

On Slovenia's Economy

• We estimate that the new package of support measures (PKP8) will be officially implemented in the first week of February. The government latest version (https://www.dz-rs.si/wps/portal/Home/deloDZ/zakonodaja/izbranZakonAkt?uid=D61FE15180D48C8FC125866900340125&db=pre_zak&mandat=VIII&tip=doc) was send to the parliament where it may be subject to some minor amendments. It effectively addresses extension of scheme for supporting the employment (until April and even 100% reimbursement of labour costs for companies that are not allowed to operate due to imposed restrictions). The other important piece of legislation is the subsidy paid out to employer for each employee whose wage has increased due to the increase in minimum wage of 8.9% (now at EUR 1,025). The reimbursement (a lump sum of EUR 50) will be paid out for the first half of the year and represents at least 50% of the increased labour costs of an individual employee (labour costs ceteris paribus increased by about EUR 98). ...
• The capacity utilization in manufacturing (1st quarter) was at 82.2%, 0.8 p. p. lower than in October 2020. All quarterly indicators deteriorated, except the competitive position on the EU markets indicator, which improved by 3 p. p. Other assessments of the competitive position deteriorated, namely the assessment of the competitive position on the non-EU markets by 4 p. p. and on the domestic market by 2 p. p. Uncertain economic conditions are still the main factor limiting production (stated by 44% of enterprises), followed by insufficient domestic and foreign demand (34% and 30% of enterprises, respectively). 21% of enterprises stated that business is limited by the COVID-19.
• The January construction confidence indicator was 2 p. p. higher than in December 2020 and 4 p. p. lower than in January 2020 but 14 p. p. above the long-term average. Due to increase in total orders, the confidence indicator was higher. The following indicators also grew: employment, expected orders, and (slightly) current and expected prices. Most construction enterprises stated bad weather conditions as the main limiting factor in their activities (stated by 40% of enterprises or 21 p. p. more than in the previous quarter). This was followed by strong competition in own sector (26% or 6 p.p. fewer), the COVID-19 (25% or 10 p. p. more) and insufficient demand (23% or the same as in the previous quarter). Based on that we expect a gradual take-off in construction (adjusted by the season). A unexpected warm weather bodes well for high growth in constructions works performed outside.

On EU-27

• The European Commission has decided to prolong the State aid Temporary Framework adopted until end of 2021. The Commission has also decided to expand the scope by increasing the ceilings set out in it and by allowing the conversion of certain repayable instruments into direct grants until the end of next year. We see this step as very important in extending and forming new support measures of individual EU countries. Early acceptance also brings some positive guidance to affected companies and a relief for their creditors. More at: https://ec.europa.eu/commission/presscorner/detail/en/IP_21_261.
• The German economy avoided a double-dip and grew by 0.1% q-o-q in the final quarter of 2020, from +8.5% q-o-q in 3Q. Y-o-y the growth was of course negative (-2.9%). For the whole of 2020, the German economy shrank by 5.0%, or 5.3% when adjusted for calendar effects. It's the worst performance since the financial crisis in 2009 but still much better than feared at the start of the Covid19-crisis. The Austrian economy contracted by 7.3 % y-o-y in 2020 (flash estimate by Austrian Institute of Economic Research), mainly due to accounted losses in the service sector in the fourth quarter. Based on Germany and Austrian reading, we are confident that Slovenia’s last quarter GDP (due to be released on 26th of February) is going to held up similarly well.

Must Read of the Week

• McKinsey video on “COVID-19 vaccines are here. What does that mean for your organisation’” (https://www.linkedin.com/video/live/urn:li:ugcPost:6760209200934129665/)

Comment: a very concise and comprehensive template on when to accept the vaccines are being deployed across the world.

• OECD Science, Technology and Innovation Outlook 2021 (OECD Science, Technology and Innovation Outlook 2021 | READ online (keepeek.com))

Comment: R&D in times of pandemic; a very comprehensive document with several sweet spots as reported R&D expense across major blue-chips, several useful links etc. It is interesting to note how cooperation across world science increased when looking for solutions to fight the pandemic.

Forecast of the Week

• Slovenian CPI, January 2021 (y-o-y): +0,0 vs. Jan. 2020

Comment: higher crude oil prices in last month are expected to influence the final prices, services inflation to edge up, lower inflation in food

Quote of the Week

“The old rule of forecasting was to make as many forecasts as possible and publicise the ones you got right. The new rule is to forecast so far in the future, no one will know you got it wrong.”
(Ruchir Sharma)