Release date 20 September 2021
Economic growth in Slovenia in 2021 probably above 6%
As expected, in the autumn forecast, IMAD (Institute of Macroeconomic Analysis and Development) significantly improved its estimate for Slovenia’s real GDP growth in 2021, from 4.6% to 6.1%, which is one of the historically largest positive adjustments in terms of growth prospects. Given the data in the first half of the year, which are otherwise temporary in nature, this did not come as a surprise to us. It is also worth noting the increase in the growth estimate for 2022 (from 4.4% to 4.7%), while the estimate for 2023 remained unchanged (3.3%). According to the current estimate (EUR 50.4 billion), GDP is expected to be EUR 1.9 billion higher at the end of 2021 than estimated in the spring. We estimate that the consensus among independent institutions (currently at 5%) will increase towards 6% in the next two months. For exports, IMAD raised its growth estimate from 8.6 to 10.9% (2021), and for imports from 8.8 to 12.6% (2021).
The estimate of average inflation (from 0.8% to 1.4% in 2021 and from 1.2% to 2.0% in 2022) was also revised sharply upwards, mainly due to higher growth in commodity prices (mainly energy) and their effect on medium-term price increase. The average price of Brent is expected to remain at current levels next year, which is also at the level of an average estimate at other relevant institutions. The EUR-USD ratio is expected to be 1: 1.18 over the next two years. In practice, forecasting the prices of oil, other raw materials or currencies is a rather uncertain operation and the reliability of the estimate is low in the short run, which is usually quite different from GDP, industrial production or inflation.
After two months of decline (0.3% in May and 0.4% in June), the production in construction at EU-27 level also declined in July (-0.1%), which was a slight negative surprise. Construction of buildings increased by 0.3%, while at civil engineering it decreased by 1.8%. Compared to the same period last year (July 2020), production was higher by 3.8%, with high growth in Hungary (+23%), Austria (+14%) and Sweden (+ 10%). The drop in Spain stood out (-13%). It should be noted that data are only available for 19 of the 27 EU Member States.
The Fed takes on corporate credit risk: an analysis of the efficacy of the SMCCF; Amat Simon Gilchrist, Bin Wei, Vivian Z. Yue and Egon Zakrajšek; BIS Working Papers, No 963, 9 September 2021; available at: https://www.bis.org/publ/work963.htm
Comment/Abstract: Authors found that the Fed announcement of SMCCF on 23rd March 2020 and expansion of the programme on 9th April significantly reduced credit and bid-ask spreads and that this appears to have had little to do with whether or not a particular bond was eligible for purchase by the SMCCF. The narrowing of credit spreads was due almost entirely to a reduction in credit risk premia, as opposed to a reduction in default risk. The Fed's forceful response to pandemic-induced turmoil in financial markets shored up investor confidence and improved market sentiment, effectively forestalling fire sales and stabilising conditions in the market well before the Fed bought anything. Their results indicate that the Fed's actual purchases of individual corporate bonds had negligible effects on credit and bid-ask spreads.
Covid-19 policy measures to support bank lending; Catherine Casanova, Bryan Hardy and Mert Onen; BIS Quarterly Review, 20 September 2021; available at: https://www.bis.org/publ/qtrpdf/r_qt2109d.htm
Comment / Abstract: In the wake of the Covid-19 fallout, policymakers enacted a wide range of measures to support the flow of credit. Some measures strengthened banks' lending capacity by preserving their capital and encouraging flexibility in loss accounting. Others, such as state-backed loan guarantees or funding for lending programmes, incentivised banks to use their available capacity. Authors found evidence that both types of measures contributed to lending growth. Strong banks with ample balance sheet capacity could accommodate the large drawdown of corporate credit lines in the first months of the pandemic. Policy support appeared to foster further lending. Banks that increased their lending capacity increased their lending more than other banks. More generous guarantee programmes were associated with banks reporting looser lending standards and higher lending growth. Benefitting from such programmes, small and medium-sized enterprises expanded their borrowing, especially those in sectors hit hard by the pandemic.
“People don't realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but that's as far as we go. And I've had a very successful career as a forecaster, starting in 1948 forward. The number of mistakes I have made are just awesome. There is no number large enough to account for that.” (Alan Greenspan)