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Published: 07/07/2020

Public Finance and Macroeconomic Developments, July 2020

The COVID-19 pandemic and the measures for its containment have had a significant impact on the deterioration of macroeconomic results while directly and indirectly also worsening fiscal results. In the first quarter of 2020, the general government deficit amounted to EUR 739 million, which is 6.6% of GDP (in the same period last year: −0.8% of GDP), while the general government debt has increased by EUR 1.7 billion since the end of last year. In the first quarter of the year, the share of the debt in GDP increased by 3.5 percentage points, i.e. to 69.6% of GDP by the end of March. In accordance with the monthly data on the central government budget debt, the general government debt also increased in the second quarter of the year, since the net budget borrowing amounted to EUR 5.3 billion in the first half of this year.

With the slow-down in the economic cycle, the deterioration of the position of public finance was already evident by the end of last year when the revenue dropped quarter-to-quarter, while the expenditure growth dynamics remained high. In the quarter of the crisis outbreak, the year-on-year dynamics of revenues (-3.4%) and expenditure (9.5%) became even more divergent due to the economic downturn and the commencement of the implementation of measures adopted to prevent the consequences of the pandemic. Compared to 2019, lower revenue predominantly contributed to the year-on-year deterioration of the general government balance at the beginning of the crisis. On the basis of monthly data compiled under the cash flow methodology, the government position in the second quarter of the year deteriorated further as expected.  In accordance with the temporary daily data the central government budget deficit alone amounted to EUR 1.9 billion in the first half of the year, while according to the data available the health insurance fund also recorded a significant five-month deficit.

In the first quarter of 2020, GDP in Slovenia fell by 4.5% in comparison to the last quarter of 2019, while on a year-on-year basis it fell by 3.4%. The pandemic had a direct impact on the activity only for a short period of time in the first quarter. The decrease in demand in the first quarter mainly reflected a significant decline in household consumption and investments in machinery and equipment; in that period the volume of international trade also dropped significantly. According to the data available, the economic downturn expectedly deepened in April. The economic climate indicator improved in May and June; it, however, remained well below the level before the pandemic.  The situation in the labour market deteriorated slightly less significantly than the economic activity, due to the usual delay in the labour market response and due to the measures adopted to preserve jobs. After a relatively strong increase in the number of registered unemployed persons at the beginning of the crisis, the number of unemployed dropped slightly in June.

The forecasts for the fall in GDP for Slovenia at the annual level for 2020 range from -5.5% to -9.5%. The forecasts are exposed to considerable uncertainties with regard to the future course of the pandemic, the measures related thereto and the recovery of economic activity. According to most of the forecasts available, by the end of 2021 the GDP level is predicted to lag behind the level before the pandemic despite the growth expected next year.

Countries responded to the crisis with extensive anti-crisis measures. In countries with more fiscal space, most of the measures include direct financial assistance, while countries with less space for taking action are adopting, to a relatively greater extent, measures in the form of guarantees and loans. From the aspect of the current stage of the pandemic, it is recommended that countries gradually abolish support measures and focus on the provision of demand-side incentives. For the implementation of measures, efficiency and transparency continue to be important; in particular, the latter is crucial for the provision of credibility of measures both among domestic economic entities and in the financial markets.  The amount and the price of financial means available, as well as the assessment of the effectiveness of individual measures once the epidemic is over, will greatly depend on this credibility.

 

© Fiscal Council 2017 - 2020

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