Weekly Economic Highlights: Despite the challenges, Fitch confirmed Slovenia's favourable credit rating

14_11_2022_Weekly Economic Highlights

Release date 14. November 2022

Despite the challenges, Fitch confirmed Slovenia's favourable credit rating

On Slovenia's Economy

  • The rating agency Fitch followed the recent decision of the rating agency Moody's and confirmed Slovenia's sovereign debt rating A with a stable outlook. At the same time, it cited high development indicators, improvement of external financing conditions and a credible institutional environment as strong pillars. The public debt is high considering the small size of the economy, and the implementation of structural reforms is slow. They expressed relatively high optimism for growth in 2023, as real GDP is expected to strengthen by 1.3%, which is among the higher estimates. At the same time, the public finance deficit is expected to amount to 4.1% of GDP next year, which is more than expected this year (3.6%), but less than planned in the draft budget (5%). Until now, such an opinion has been the exception rather than the rule on the part of credit agencies. Source: Fitch Ratings

  • The number of registrations of legal entities decreased by 2.6% in September compared to August, but compared to the 2015 average, it was still higher for one tenth. Number of bankruptcies was higher by 60% compared to the previous month, but still a quarter below the 2015 average. Source: Statistical Office of the Republic of Slovenia

  • More economic topics are below in the attachment.

On World Economy

  • In Asia, production/sales fell in October in 12 of the 18 sectors, most notably in healthcare, paper and food and beverage. In our opinion, this is due to more positive expectations about the end of the pandemic measures, high natural gas prices and general high prices, which also force Asian consumers to consume more agricultural raw materials (soybean, flour, corn) instead of processed food, which is a luxury for many middle-income Asian households. The sectors that strengthened were like those in Europe, with the exception that the transport sector in Asia recorded high business growth. Source: S&P Global

  • The construction PMI in the euro area (measured for the three largest euro economies) again declined moderately in October (from 45.3 to 44.9), which means the sixth consecutive decline in activity. The indicator is particularly low for Germany (43.8), partially also for France (44.3), while for Italy it is still close to the neutral value (50). Future residential construction is expected to decline the most. The declines were also high in office buildings, while the civil engineering did not record a large decline. New orders fell for the 7th consecutive month. For the first time in a long time, the inclination for new employment decreased (value below 50), of which the most in Italy and Germany. Pessimism about the future of business was notably high (in Germany it was historically the second highest), while in Italy there was still some optimism. Business costs rose sharply for the third month in a row, contributing to fewer new orders. The exception was the Italian construction market, where the cost growth was the lowest. Source: S&P Global

  • More economic topics are below in the attachment.


Must Read of the Week

  • What drives inflation? Disentangling demand and supply factors; Sandra Eickmeier and Boris Hofmann; BIS Working Papers No 1047; 9 November 2022. Available at: https://www.bis.org/publ/work1047.htm

Comment/Abstract:  Author estimate indicators of aggregate demand and supply conditions based on a structural factor model using a large number of inflation and real activity measures for the US. They identify demand and supply factors by imposing theoretically motivated sign restrictions on factor loadings. The results provide a narrative of the evolution of the stance of demand and supply over the past five decades. The most recent factor estimates indicate that the inflation surge since mid-2021 has been driven by a combination of extraordinarily expansionary demand conditions and tight supply conditions. They obtain similar results for the euro area, but with a somewhat greater role for tight supply consistent with the greater exposure of the euro area to recent adverse global energy price shocks. They further find that tighter monetary policy and financial conditions dampen both demand and supply conditions.

Forecast of the Week

  • GDP, Slovenia, Q3 2022, (15 November), Statistical Office of RS; +0.2% (Q3 2022/Q2 2022, SA)

Comment: After 0.9% rise in Q2 2022, we expect a positive trend to continue, although at weaker pace. Tourism and construction will be the main drivers of GDP.               


Quote of the Week

“Only those who are ideologically opposed to military programs think of the defence budget as the first and best place to get resources for social welfare needs.”

(Herman Kahn, founder of the Hudson Institute)

Please see the enclosed attachment