Feature: Economic Crisis that Produced a “Lost Decade” in Slovenia

By , 13 Jan 2019, 10:36 AM Business
Feature: Economic Crisis that Produced a “Lost Decade” in Slovenia Montage: JL Flanner

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STA, 12 January 2019 - Ten years ago Slovenia faced the onset of a major financial and economic turmoil and it was not until 2017 that the country's GDP returned to pre-crisis levels. However, even as some described the period as a lost decade, the economy has emerged from it healthier and more resilient to a potential new crisis.

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After a few years of rapid expansion peaking at 6.9% in 2007, Slovenia's economy contracted by 7.8% in 2009 in the wake of the outbreak of a global financial crisis in what was one of the biggest slumps in the EU, after those in the Baltic countries and Finland.

After minor upwards corrections in 2010 and 2011, faltering domestic private and state spending and fast-falling investment led to two more years of economic decline, which was exacerbated by a deterioration in the banking sector and the financial market's growing distrust of the country.

The crisis bottomed in the third quarter of 2013 and Slovenia's GDP has been increasing ever since, accelerating up to the annual rate of almost 5%. The growth is estimated to have proceeded at roughly the same pace in 2018, after which it is expected to slow down to about 3% in the coming years.

Despite the accelerated growth seen in the past few years, real GDP did not return to pre-crisis levels until 2017, which means that the country needed almost a decade to come back to the point it departed from at the end of 2008.

A major domestic factor deepening the crisis was a slump in investment, both corporate investment and housing construction and major investments in road and rail infrastructure after a strong growth in the pre-crisis years.

Between 2008 and 2013, the value of construction work was more than halved, before increasing in 2014 driven by completion of EU-subsidised projects, only to fall yet again. It was not until 2017 and 2018 that the sector saw more sustainable double-digit growth rates.

The collapse in the construction industry caused many construction companies to go bust, including giants such as SCT and Primorje. It also paved the way for new and so far minor players to make a breakthrough in the field.

Real GDP growth (%)   Real GDP per capita (EUR)

2008        3.3                  19,200
2009       -7.8                  17,500
2010        1.2                  17,700
2011        0.6                  17,800
2012       -2.7                  17,300
2013       -1.1                  17,000
2014        3.0                  17,500
2015        2.3                  17,900
2016        3.1                  18,500
2017        4.9                  19,400

* Reference year is 2010
     Final household  Gross capital  General government
     consumption      formation      final consumption
2008         2.6          7.0                4.9
2009         0.9        -22.0                2.4
2010         1.1        -13.3               -0.5
2011         0.0         -4.9               -0.7
2012        -2.4         -8.8               -2.2
2013        -4.2          3.2               -2.1
2014         1.9          1.0               -1.2
2015         2.3         -1.6                2.4
2016         4.0         -3.7                2.7
2017         1.9         10.7                0.5
      Value of construction work (%)   No. of construction jobs

2006              15.6                        72,810
2007              18.5                        82,140
2008              15.5                        92,140
2009             -21.0                        91,280
2010             -17.0                        82,970
2011             -24.8                        73,230
2012             -16.8                        67,700
2013             - 2.6                        62,960
2014              19.5                        62,290
2015             - 8.2                        62,550
2016             -17.7                        61,930
2017              17.7                        63,550

Source: Slovenia's Statistics Office, Eurostat

An even better indicator of the so-called lost decade is trends in GDP per capita and final individual consumption in purchasing power standards (PPS) as a percentage of EU, as two comparative indicators of a standard of living.

At the end of 2017 Slovenia trailed the pre-crisis level by both measures compared to the EU average. During that time, it has been overtaken by the Czech Republic among the new EU members, while Slovenia and the Baltic countries are catching up.

       GDP per capita in PPP
        (% of EU average)
2008          89.5
2009          85.1
2010          83.3
2011          83.0
2012          82.0
2013          81.6
2014          82.1
2015          81.8
2016          82.2
2017          84.0
     Final individual consumption in PPP
            (% of EU average)
2008	             80.2
2009	             79.9
2010	             80.5
2011	             80.8
2012	             80.4
2013	             78.1
2014	             77.2
2015	             76.5
2016	             77.3
2017	             77.2

Source: Eurostat

The crisis years and the post-crisis period have also produced some positive developments. The Slovenian economy has undergone a restructuring and boosted its competitive edge, so that exports recovered fast from the major contraction in 2009, and after an interim period of moderate growth, returned to strong growth in 2017. Exports at the end of 2018 are estimated to have outpaced those of 2008 by 50%.

Since exports have been increasing at a much stronger rate than imports, Slovenia also started to post a a trade surplus which (services included) in 2017 amounted to almost 10% of GDP and accelerated to 12% of GDP in the third quarter of 2018.

It was a key factor to the improvement of Slovenia's balance of payments and total economy balance. The latest available data indicate that Slovenia's economy posted a surplus of 9.1% of GDP in transactions with abroad in the third quarter of 2018.

The surplus has put the national economy on much healthier foundations, meaning it is no longer living beyond its means, but rather generates savings.

If Slovenia was a net debtor in the pre-crisis years, the banks settling their foreign debts and corporate deleveraging have turned the financial and corporate sectors and households into net creditors to abroad, so that the only net debtor remains general government, having taken out a great amount of foreign debt during the crisis.

  Exports of goods and services    Annual change (%)
              (EUR bn)
2008            20.0                      2.1
2009            16.3                    -18.8
2010            18.6                     14.6
2011            21.0                     12.7
2012            21.1                      0.3
2013            21.5                      2.3
2014            22.9                      6.4
2015            23.9                      4.4
2016            25.0                      4.3
2017            28.3                     13.2

      Balance of goods trade (EUR m)   Total economy balance/
                                       Current account balance
                                              (% of GDP)
2008         -299.6                           -4.8/-5.3
2009         -100.7                           -0.2/-0.6
2010         -146.1                            0.0/-0.1
2011         -155.6                            0.0/0.2
2012         -101.7                            2.2/2.1
2013         -565.4                            3.6/4.4
2014          355.5                            6.0/5.8
2015          635.1                            5.6/4.5
2016          859.1                            4.6/5.5
2017          658.8                            6.3/7.2

Source: Slovenia's Statistics Office, central bank

 

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