Release date 9 July 2021
Continuous upgrades in economic growth estimates is accompanied by the first signals of the 4th wave
The European Commission (EC) published its summer forecast on Wednesday, 7 July, raising the estimate for GDP growth in the euro area for 2021 from 4.3% to 4.8% (for 2022 from 4.4% to 4.5%) as well as for inflation (from 1.7% to 1.9% in 2021 and from 1.3% to 1.4% in 2022). For Slovenia, the upgrade was among the largest. Instead of the previously projected 4.9% growth in 2021, it is expected to be stand at 5.7%, and for 2022 it will decrease slightly (from 5.1 to 5%). The consensus of independent institutions is currently at 4.7% GDP growth in 2021 and 4.4% in 2022, which in fact means that ECFIN's optimistic view is among the highest. The upgrades in growth estimates were guided by data on the minimum decline in GDP in the 1st quarter 2021, improving health picture and, accordingly, the withdrawal of containment measures in the Member States. Among the major risks in their view are the risks of the response of households and companies to changes in containment measures and the effect of the withdrawal of support measures. According to them, the difficulties in the supply of raw materials and semi-finished products are of a temporary nature and will only affect a limited number of industrial sectors. One of the key assumptions in the forecast is also the assumption of containment measures. These are, on average, the least restrictive after September 2020 and are expected to be released in the second half of the year, but some are expected to remain in force until the end of 2021 and early 2022. The scenario of a 4th wave of infections is not included in the forecast.
The price of a barrel of Brent crude fell to around $ 74 after the local peak ($ 77) reached on July 6, which is still higher than the majority of analysts' expectations. After the last OPEC meeting, where no agreement has been reached, we estimate that members will increase production (there is a lot of free production capacity among members), which should again contribute to falling prices in the medium term. Oil stocks in OECD countries are close to the average for the period 2015-2019. Margins in refineries are still low, which means that physical demand for oil is not as high as shown by the price of contracts for future supply. In June, metal prices fell slightly as China released a large stock of aluminium, copper and zinc from state reserves (source: ING Think). Premium on imports of copper cathodes from China at a multi-year low, which should mean sufficient copper stocks. Already next year, the opening of new copper mines is expected to increase physical surplus of this raw material on the market. In the segment of agricultural raw materials, the story is similar. Prices have fallen since the multi-year highs, also due to improved weather conditions in the USA, which is expected to improve the prospects for good corn and soybean yields. The drought in Brazil, on the other hand, has lowered expectations about the success of the harvest in Brazil. Another negative effect for commodities (mostly on all) have become slightly different expectations about the tightening of monetary policy by FED. Expectations of lower bond purchases and a rise in the central interest rate as early as 2022 (as the market now expects, but expectations do not always materialize) have also strengthened the dollar, which again reached 1.18 by 1 euro..
Comment: Data on quarterly value of main financial assets in the economy, at level of NFC, government, households, and financial intermediaries.
Exports of services, Slovenia, June 21/May 20 (Statistical Office of RS): +4.0
Comment: After a 2.3% drop in May 21 (vs. April 21) we expect a rebound in May, which is expected to be led by exports of transport and tourism services.
“One thing I've noticed about history - you can search on newspapers going back hundreds of years, search for 'economic forecast,' you don't find it. It would be very rare to find it.” Robert J. Shiller)