Release date 18 July 2022
Pharmaceuticals and electronic industry with high growth since the beginning of the year
Slovenia’s industrial production increased by 0.8% in May (as in the euro area), which was more than our estimate (+0.2%) and faster than in April (+0.4%). Although this data is less reliable, it nevertheless shows that solid data (data showing revenues, production) in the first half of the year has not deteriorated significantly. Production in manufacturing increased by only 0.2%. Sector of electricity, gas and steam supply contributed the most to the monthly growth, as it increased production by 5.1%. In mining, production fell by 7.7%, which mainly reflects volatile changes in the amount of mined lignite at Premogovnik Velenje. On a yearly basis, industrial production in the first five months was higher by 3.5%, of which in mining by 23% and in manufacturing by 5.1%. In the supply of electricity, gas and steam, it was lower by one-sixth, which reflects poor hydrology and thus low level of electricity production in hydro power plants.
In May, the monthly export of services increased to EUR 860 million (EUR 3.8 billion in the first five months of 2022), and imports to EUR 550 million (EUR 2.6 billion in the first five months of 2022). May’s exports were above our expectations (EUR 825 million) and mainly reflect the increase in spending by foreign tourists (48% contribution to growth) and the growth of transport services (25% contribution to overall growth in one year). In the first five months of 2022, the export of services was higher by EUR 1 billion compared to the first five months of 2021, and the import by EUR 600 million. Thus, the surplus in services increased from EUR 790 million to EUR 1,250 million (by EUR 460 million). In trade of goods, the surplus (EUR 875 million) turned into a deficit (-EUR 1 billion), which meant a deterioration of EUR 1.9 billion. The deficit in primary income also increased (by EUR 200 million). Compared to the period before the outbreak of the pandemic (the first five months of 2019), the export of services was higher by EUR 600 million (by 18%), of which EUR 245 million was due to higher exports of transport services, EUR 200 million due to higher exports of business services and EUR 115 million due to greater export of ICT services. The travel exports (consumption by foreign tourists in Slovenia) was still lower by EUR 120 million, with the monthly deficit in May (May 2022 compared to May 2019) shrinking to EUR 15 million. Source: Bank of Slovenia.
More economic topics are below in the attachment.
June’s growth of consumer prices in the US accelerated again as they rose by 1.3% compared to May. In May they increased by 1% compared to April and were thus higher by 9.1% y-o-y. The general increase in prices was high in almost all categories. In one month, the contribution of fuel, accommodation and food was highest for final change in overall index. Gasoline prices were higher by 11% and food prices by 1%. Prices ex. food and energy (the so-called core inflation, which is an indicator of the Fed's future moves) increased by 0.7% (in one year it was higher by 5.9%), which was more than in May (+0.6 %), primarily reflecting increases in the cost of real estate, used cars and semi-trucks, health care, auto insurance policies, and new vehicles. Source: U.S. Bureau of Labor Services
China's GDP fell by 2.6% in Q2 2022 (q-o-q), a deeper than expected (1.5%) decline. In the H1 2022, China's GDP was higher by 2.5%. Value added in industry (larger companies) increased by 3.4% during this period. Investments in fixed assets were 6.1% higher in this period. Growth was also the result of faster issuance of special local bonds. However, the economic situation has improved considerably since June 2022. In May, retail sales were down by 6.7% year-on-year, but in June they had already increased by 3.1% year-on-year. Production and sales of vehicles in China have already increased in June, namely by 28% and by 24%. Source: NBS
Mis-allocation within firms: internal finance and international trade; Sebastian Doerr, Dalia Marin, Davide Suverato and Thierry Verdier; BIS Working Papers; No. 1030; 14 July 2022; available at: https://www.bis.org/publ/work1030.htm
Comment/Abstract: Authors find that informational frictions between headquarters and divisional managers can lead to the over-reporting of divisions' costs, resulting in an inefficient allocation of capital across a firm's divisions. This misallocation results in the conglomerate discount, ie a situation in which the market values a diversified firm at less than the sum of its parts. Second, their model shows that international trade reduces capital misallocation through competition. Tougher competition lowers the cost level at which firms and their divisions can survive in the market and reduces managers' scope for misreporting. By reducing capital misallocation within firms, this shrinks the conglomerate discount. They test their model's key predictions with data on US companies and they find strong support. Their findings imply that more market competition can go a long way towards curbing division managers' empire-building behaviour, because it intensifies pressure on headquarters to allocate funds toward the most efficient projects.
Economic Sentiment Index (ESI), Slovenia, July 2022, (22 July), Statistical Office of RS; -1.2 (0.8 in June 22)
Comment: We expect another drop in Slovenia’s ESI, mainly due to reduced sentiment in manufacturing. We do not expect any additional drop in consumer sentiment, also due to announced gvt. measures.
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