development report 2012 - UMAR

Development Report 2012
Development by the priorities of SDS – A competitive economy and faster economic growth
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Box 2: Excessive Imbalance Procedure at EU level
In autumn 2011, the European Commission put in place a mechanism in order to provide an early warning system
against excessive imbalances in EU Member States and to take action against such imbalances. In times of economic
crisis, numerous EU Member States are faced with deterioration in competitiveness and various macroeconomic
imbalances. With a view to detecting such imbalances in the early stages, the European Commission prepared a new
mechanism called the Excessive Imbalance Procedure. This mechanism relies on three main elements: (i) an early
warning system alerting to potential imbalances, (ii) preventive and corrective action; and (iii) the enforcement of
sanctions. The early warning system is based on several indicators used for the assessment of potential imbalances
(macroeconomic imbalance procedure scoreboard). In cases of minor imbalances, the Commission issues preventive
recommendations to the Member States, while in serious cases the country concerned has to prepare a corrective
action plan. In the event that a country fails to respond adequately, it may ultimately be imposed financial sanctions
reaching up to 0.1% of GDP. The excessive imbalance procedure will start to apply in 2012 within the framework of the
European semester, expected to strengthen the economic governance by way of ex ante coordination of budgetary
and economic policies at EU level.
In order to provide for the early detection of potential imbalances, the Commission has currently defined 10
indicators as the most suitable for detecting macroeconomic imbalances or gaps in competitiveness. They are divided
into two groups: external imbalance indicators (current account balance, net international investment position, export
market shares, nominal unit labour costs and real effective exchange rate), and internal imbalance indicators (house prices,
private sector debt, private sector credit flow, public sector debt and the unemployment rate). Alert thresholds have been
set for each indicator where breaching the threshold means that the country concerned has an imbalance in a certain
area which may be problematic. Indicator results show the first warning; the next step consists of an in-depth analysis
to determine whether the imbalance identified is truly problematic. To this end, the European Commission foresaw
additional indicators to be used in the economic reading of the macroeconomic imbalances procedure scoreboard.
As a rule, country-specific circumstances should also be taken into consideration. Although the early warning system
includes fiscal indicators, the excessive imbalance procedure has not been envisaged for the purposes of assessing
fiscal sustainability, since this is to be assessed within the framework of the Stability and Growth Pact.
In the case of Slovenia, macroeconomic imbalance indicators reveal the gaps in economic competitiveness to be
problematic, while in the years preceding the onset of the economic and financial crisis, such imbalances were
suggested by a high growth in real estate prices and private sector borrowing. A significant gap in Slovenia’s cost
competitiveness was characteristic for the first half of the past decade. A cumulative increase in the nominal unit labour
costs measured over three-year periods again exceeded the threshold (9%) in the past three-year period (2008–2010)
when it was among the highest in EU (for more on the reasons for this, see Chapter 1.2.). The competitiveness problems
became evident from IMAD calculations concerning the reduction of Slovenia’s market share on the world market of
goods during the period 2008–2010, while in 2010 (the most recent data provided by the Commission) Slovenia came
very close to approaching the alert threshold set by the European Commission, which takes into account market share
changes in goods and services over a five-year period. Apart from competitiveness problems, slight imbalances during
the period 2009–2010 were observed in Slovenia’s net international investment position and in the current account
balance deficit for the period 2008–2009 (see Chapter 1.1.). A very different picture was seen during the pre-crisis
period (2004–2008) when the growth of real estate prices was well above the alert threshold of 6% (14% on average),
while during the period 2007–2008 the threshold value was considerably exceeded by the growth in the private sector
borrowing (see Chapters 5.4. and 1.3.2.).
Table: Macroeconomic imbalance procedure scoreboard for Slovenia
Indicator/Threshold 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
External imbalances
Internal imbalances
Current account, as % of GDP (3-year average) +6/-4 % -1.9 -0.5 0.1 -0.8 -1.7 -2.3 -3.0 -4.6 -4.3 -3.0
Net international invest. position, as % of GDP -35 % -2 0 -6 3 -11 -17 -21 -33 -36 -36
Real effective exchange rate (deflator HICP),
3-year change, %
+/-11 % -2.5 0.3 5.4 4.6 1.7 -0.7 1.0 4.3 5.8 2.3
Export market share (goods and services), 5-year
change, %
-6 % -5.9 5.6 3.3 16.2 26.6 17.4 18.8 10.7 4.8 -5.9
Nominal unit labour cost, 3-year change, % +9 % 22.2 24.0 20.6 14.6 9.7 6.2 5.3 10.2 18.5 15.7
Deflated house prices, y-o-y change +6 % 9.6 13.1 14.7 18.5 -2.3 -8.7 0.7
Private sector credit flow, as % of GDP 15 % 8.6 8.7 9.6 13.6 13.9 23.5 18.3 4.2 1.8
Private sector debt, as % of GDP 160 % 65 67 71 76 85 91 106 117 129
Public sector debt, as % of GDP 60 % 27 28 27 27 27 27 23 22 39
Unemployment rate, 3-year average 10 % 6.7 6.4 6.4 6.4 6.5 6.3 5.8 5.1 5.1 5.9
Source: Alert Mechanism Report (European Commission), 2012.
Note: Grey fields indicate the breaching of the indicative threshold value subject to the excessive imbalance procedure at EU level.