Release date 21 January 2022

Oil prices are once again increasing price pressures

On Slovenia's Economy

• The estimate for Slovenia's economic growth in 2022 rose from 3.8% (December) to 4.0% in the last monthly Consensus (our estimate is 4.4%). There is 60% probability according to a poll of analysts that growth will be between 3.2 and 4.4%, and one fifth that it will be between 4.5 and 5.6%. Industrial production is expected to strengthen by 5.2% this year (4.8% was the estimate in November), which is a surprise, as growth was extremely high until November and a high base reduces the likelihood of further high growth. The estimate of real growth in domestic consumption increased from 4.3 to 4.5%, with average price growth (CPI) expected to be 2.6% in 2022 and 1.9% in 2023 (for this year it even decreased by 0.2 percentage points). There is a 50 % probability (according to independent analysts) that growth will be between 1.9 and 2.9%. There is another 30% that it will be between 3 and 4%, which is not negligible. The probability of inflation above 4% is at 13% and below 1.8% at 8%. Risks are skewed to upside as energy prices could be very volatile. Nevertheless, wage pressures have not appeared yet to be a decisive factor in CPI growth.

• The consumer confidence indicator remained unchanged in January 2022 (it strengthened slightly in December), which was better than we expected (a drop of 2 index points) and confirms that the extreme rise in omicron infections did not further undermine consumer optimism (currently stands 2 points below than the long-term average). This is probably also due to some changes related to shortening the quarantine period. Among the sub indicators that affected the change, expectations on the economic situation (by 5 percentage points) and major purchases (by 3 percentage points) improved. This rise was offset by the decline in the indicator of expectations regarding the financial situation in the household (which deteriorated by 4 percentage points) and the current financial situation in the household (lower by 3 percentage points). Compared to October 2021 (quarterly survey),consumers' expectations regarding the purchase or construction of housing improved (by 3 percentage points) and expectations regarding housing improvement (by 2 percentage points). Expectations to buy a car, however, deteriorated by 2 percentage points. Consumer perceptions of future price developments have not changed significantly. Half of them believe that prices will rise faster, 37% that they will rise at the same rate (4.9% in December), and 8% that they will rise at a lower rate. Another 6% believe that they will remain about the same as now, and 1% believe that they will decline.

• More economic topics are below in the attachment.

On World Economy

• After the November’s (USD 80.8) and December’s (USD 74.3) fall in oil prices, it became clear that this was a temporary situation. The price of a barrel of Brent oil has risen above USD 88 per barrel, to the highest value in seven years, which is close to our estimate for the average of the year (USD 85), while the majority of institutions estimated a few months ago that the price will fall to around 70 to 75 USD. The acceleration in price was due to an attack on storage facilities in the United Arab Emirates. Geopolitical tensions in Eastern Europe and concerns about sufficient spare capacity in OPEC countries have also contributed to the high rise. Rising oil prices will once again contribute to rising year-on-year inflation in all countries. Two-year Treasuries lost value due to build-up of market expectations of 4 interest rate hikes in 2022, and their YTM rose above 1% for the first time in two years. Analysts do not agree on whether the Fed will actually increase 3 times in 2022 or whether it will be more or less frequent. The yield to maturity of a 10-year German government bond, on the other hand, turned positive for the first time.

• The ZEW expectations indicator (German CFOs are respondents) rose surprisingly sharply in January, by 21 index points to 51.7. On the other hand, the current situation indicator fell by 2.8 points to -10.2. Expectations rose due to expectations of a drop in the number of infected and the removal of restrictions. Expectations also rose in the euro area, by 22.6 index points to 49.4. Inflation expectations eased, with 58% of CFOs estimating year-on-year inflation to fall over the next six months.

• More economic topics are below in the attachment.

Must Read of the Week

• PMI survey data to reveal Omicron impact around the world; Chris Williamson; IHS Markit; 18 January 2022, free download at: https://ihsmarkit.com/research-analysis/pmi-survey-data-to-reveal-omicron-impact-around-the-world-Jan22.html

Comment/Abstract: A very extensive overview of all current PMIs and analysis of their correlation as well as providing hints about what to expect from the next releases (focus: Omicron and its effect on economy which looks weaker than any of the previous waves).

Forecast of the Week

• Economic sentiment index, Slovenia, January 22 (Statistical Office of RS); 6.0

Comment: We expect a small increase in economic sentiment index, following a rebound in December. Construction and manufacturing sub-indicators should rise according to our view.           

Quote of the Week

“I don't know what the future may hold, but I know who holds the future.”
(Ralph Abernathy, American civil rights activist)