development report 2012 - UMAR

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8 Development Report 2012 Main findings Main findings In recent years Slovenia has been moving away from its strategic targets related to economic development and the welfare of the population and there have been no substantive shifts towards a sustainable reduction of the environmental burden. The decline of economic activity in Slovenia since the beginning of the economic crisis was among the largest in the EU, so that Slovenia dropped from 91% to 85% of the EU average in terms of economic development in 2010 (measured as GDP per capita in purchasing power standards). The widening of the development gap also continued in 2011, according to our estimate. Despite the measures aimed at mitigating the impact of the economic crisis on the social situation of the population, the deterioration of economic conditions led to a decline in disposable income and hence the material welfare of the population. Environmental burden has been temporarily alleviated particularly due to the decline in economic activity and a consequent reduction of energy consumption, but the indicators of greenhouse gas emissions and energy consumption per unit of GDP show no major improvement. The setback in development is a result of structural weaknesses of the economy and a significant deterioration in access to finance. The economic crisis exposed the structural weaknesses of Slovenia’s economy, which are reflected in a relatively low level of technology intensity and added value of goods and services. Insufficient emphasis on technological restructuring and innovation activities in the previous decade, ineffective corporate governance as a result of the state still playing a predominant role in the economy, and a sluggish improvement of the business environment (administrative burden, labour market rigidity, high tax burden on labour) reduced the competitive edge of Slovenia’s economy. Consequently, Slovenia’s share on the global market has declined since the beginning of the crisis. Meanwhile, the ineffectiveness of the financial sector, especially the predominantly state-owned banks, has become a major issue, which is largely related to the inadequate allocation of funds in the past. Along with the high level of corporate sector indebtedness, this has significantly limited the access of Slovenian enterprises to banks’ sources of finance, which are, given the poorly developed capital market and insufficient volume of foreign investment practically the sole source of corporate financing. In the last year, the strongly deteriorated fiscal situation has, through its impact on interest rates, also become an increasingly important inhibitory factor in economic recovery. The aggravated labour market conditions and emergency measures adopted to solve public finance problems led to a decline in all main groups of household income and hence a drop in real disposable income. In the medium term, the welfare of the population is also jeopardised by the absence of measures that would adjust social protection systems to the ageing population. Economic and social conditions call for sustainable fiscal consolidation and laying sound foundations for a rebound of economic activity that will be more resilient to shocks and will facilitate job creation. Without structural adjustments the development gap will deepen and labour market conditions will remain tight, which will affect the quality of life. The measures should therefore focus on: ⎯ Fiscal consolidation, which will lay the foundations for economic recovery by improving access to finance. It should be carried out in a way that will least impede economic growth and will be geared towards improving competitiveness. The redistribution of tax burdens should also pursue the guidelines for sustainable development. ⎯ Sorting out the situation in the financial sector by increasing the capital position of the banking system through strategic private investors. It is also necessary to create an environment, in which equity capital will play a greater role in financing the corporate sector. ⎯ Adjustment of social protection systems (pension and health-care, and long-term care systems) and the modes of public service provision, which will, in the circumstances of financial and demographic changes, preserve at least the present levels of access to public services, material standard and quality of life. ⎯ Increasing value added by boosting the drivers of innovative capacity and human capital and creating an environment conducive to business operations. Amid sufficient investment in R&D and innovation activities and education, we should focus on increasing their effectiveness. Another important aspect of increasing value added is introduction of technologies for improving energy and material efficiency and reducing the emission intensity of the economy. ⎯ Improvement of the labour market situation: In addition to measures boosting economic activity, changes in labour market regulations and measures encouraging transition to employment by active labour market policies are necessary to facilitate a more pronounced increase in employment during the recovery.
Development Report 2012 Summary 9 Summary SDS guidelines: Slovenia’s Development Strategy (SDS) defines four key development goals: (i) the economic development goal – to reach the average level of economic development in the EU in 10 years 1 ; (ii) the social development goal – to improve the quality of life and welfare; (iii) the intergenerational and sustainable development goal – to apply the principles of sustainability across all areas of development, including sustained population growth; and (iv) Slovenia’s development goal in the international environment – to become an internationally distinctive and renowned country. 1 As at the time of the adoption of SDS (2005), the most recent figures for GDP per capita in purchasing-power parity were available for 2003, Slovenia’s objective to achieve the average level of economic development in the EU in 10 years thus refers to 2013. Slovenia has been moving further away from the EU average in terms of economic development ever since 2008, and in 2010 its gap to the EU average was even wider than at the beginning of the implementation of SDS in 2005. In recent years Slovenia has moved away from the realisation of the principal economic goal of SDS (to reach the average level of GDP per capita in PPS in the EU by 2013), and this shift is not just temporary. The economic slowdown is largely a consequence of structural weaknesses, which are reducing the competitive position of Slovenia’s economy and are a result of postponing the privatisation of the economy and the implementation of key structural reforms in the past. After a substantial contraction of GDP in 2009, Slovenia thus continued to move away from the average level of economic development in the EU in 2010 and 2011. According to the most recent Eurostat data, Slovenia’s GDP per capita (in purchasing power standards) dropped to 85% of the EU average in 2010, and we estimate that, taking into account the stagnation of economic activity in Slovenia, the gap widened further in 2011. Between 2008 and 2010, the development gap increased (by 6 p.p.) more than it decreased in the period from the beginning of the implementation of SDS to 2008 (by 4 p.p.), so that Slovenia will not even be able to meet the set goal in the medium-term. The reasons why after the significant decline of GDP at the beginning of the crisis there has been no serious economic recovery mainly stem from the domestic environment. Domestic demand has been shrinking ever since the onset of the economic crisis. In 2010 and 2011 economic activity thus relied only on the growth of exports, but this lagged behind growth in Slovenia’s main trading partners due to deteriorating competitiveness. Besides the low level of technology intensity of products and services as a result of delayed implementation of key structural reforms that would increase the productivity of the economy, the possibilities for faster economic growth are also hampered by the inefficiency of the financial sector and high corporate indebtedness. The access of the corporate sector to finance is therefore still highly limited. In 2011 it was aggravated further due to the deterioration of the quality of domestic banks’ assets (increase in the share of bad claims), expiration of guarantee schemes for banks’ borrowing abroad, modest inflows of domestic resources to banks and further tensions on international financial markets. Slovenia’s fiscal position has also worsened dramatically since the beginning of the economic crisis. In 2009 the deterioration was largely related to the economic crisis, but in the absence of adequate systemic fiscal consolidation measures, the general government deficit also remained high in 2010 and 2011, which is becoming a more and more important obstacle to economic recovery due to the impact on interest rates. The economic crisis exposed the impact of factors that reduce the competitive edge of Slovenia’s economy and exports. The decline in Slovenia’s share on foreign markets, which is one of the indicators of export competitiveness, was among the largest in the EU in 2008–2010. This period was also characterised by a strong increase in cost pressures on competitiveness, which, except in 2009 (a drop in productivity), mainly resulted from wage growth. In 2011 positive moves were seen in both export and cost competitiveness, but given the strong initial deterioration, the competitive position of Slovenia’s economy has not improved much yet. The main weakness of the competitiveness of Slovenia’s economy is relatively low productivity (in none of the sectors value added per employee exceeds the EU average), which can only be improved by strong structural changes. The level of technology intensity of exported products continues to remain below both the EU average and the average of the new EU Member States. In comparison with the EU as a whole, Slovenia also has much lower material productivity, meaning that its economy is more dependent on activities with high (or less efficient) use of material resources. On the other hand, the service activities, particularly knowledge-intensive services, which could, with their role in production processes of other sectors, help improve the competitiveness of the whole economy, have difficulty catching up with the fast development in more advanced economies.
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Part II Indicators of Slovenia’s
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THE SECOND PRIORITY Efficient use o
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THE FOURTH PRIORITY: A modern welfa
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Development Report 2012 Appendix 24
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development report 2012
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