15 October 2019
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Recession is coming to Slovenia but when and with what impact remains unclear, said Jure Stojan from the Institute for Strategic Solutions (ISR) at its annual conference in January during the launch of the Adriatic Journal: Strategic Foresight 2019 publication.

While economic growth continued throughout autumn, the first signs that things are about to change have become more apparent in January, with American corporations giving more pessimistic outlooks, Stojan warned. However, corporations in the wider region of South East Europe are not following suit and are still quite realistic in their communication. Similar story is in China where there was no such drama as in the US.

"We need not worry about the recession in the region for at least a few more months, but there is something bad going on in the US economy, which is not currently reflected in the official statistics,"
Jure Stojan, partner at ISR

Tackling lack of workforce

Despite worrying signs on the global level, economy minister Zdravko Počivalšek was optimistic about the future of economic growth in Slovenia and warned against hysteria in forecasting the crisis. He outlined two key challenges for Slovenia. The first is the trade war between US and China, where Slovenia is not in a position to influence the decisions made by the US. However, it can influence the other of its challenges which is a lack of a workforce. According to Počivalšek, there are four intertwining ways to tackle this problem.

The first part of the solution takes into account that out of 76,000 unemployed people in Slovenia, there are 20,000 potential workers who could enter the labour market. Here, Počivalšek believes that social benefits should only be paid to those who really need it to push those who don’t back to work.

The second part involves employing pensioners, and, indeed, a proposal has been drafted for pensioners to be able to work and pay regular taxes and contributions on those salaries, while at the same time receiving full pension. The third part includes the changes to the higher education system where there should be a cap on how many years students should take to complete their studies in order to get them into the labour market as soon as possible. Finally, in the future Slovenia should also look to import workforce.

But to attract the right workers, Slovenia needs to have something to offer including higher wages, the minister said. According to him, tax exemptions for qualified personnel should be on the table as well as a plan for salary growth in coordination between the economy and the state.

Outside factors

"If Germany sneezes, we catch a cold. This will happen again sooner or later - there will be a drop in orders"
Domen Prašnikar
Chief executive of Valior

Domen Prašnikar, chief executive of Valior, a business consultancy based in Slovenia, fears the lack of workforce won’t be a problem if predictions by some analysts of looming recession are realised. In 2007 Slovenia was also facing workforce shortages but the problem disappeared with the onset of global economic crisis, Prašnikar reminded, adding that Slovenia’s economy is very dependent on exports and hence on the external markets.

Indeed, German industrial output fell by 1.9% in November at a monthly level, but Slovenian companies are not yet impacted by this since orders from German customers for Slovenian companies come with a delay, warned Blaž Brodnjak, chairman of the management board of NLB bank.

"It takes six to nine months before businesses start to optimise their production, and then (the orders to) the satellite countries drop."
Blaž Brodnjak
Chairman of the management board of NLB bank

Debt: an unresolved problem

Another problem facing economies when the next recession occurs is that the world today is absolutely and relatively more indebted than ever before with the USA’s debt standing at more than 100% of its GDP and still rising. “The 2008 problem has never been solved and it is becoming deeper”, Prašnikar points out, adding that the recent drops in value in US stock exchanges is a signal that the longest bull market is over and will continue to decline further.

"They have used up all the options. The only thing they didn’t do is throw money at people from the helicopter. Now we are all full of money, but economic activity is slowing down”.
Blaž Brodnjak
Chairman of the management board of NLB bank

Another reason why the next recession could be worse than the last is because the ECB has already taken all possible measures to incite economic activity, so the question is how it will be able to act in the future crisis, warns Brodnjak.

Regardless of all the possible negative outcomes, participants of the round table at ISR’s conference agreed that the Slovenian economy and banks are significantly better prepared for the crisis than they were in 2008. In order to prepare for the crisis, however, Prašnikar advised companies to diversify their customers and markets, and have a sufficient cost variability they will be able to decrease when orders decline.

Sergej Simoniti, while of the opinion that Slovenia will continue to be successful in 2019, warns that the next financial crisis will hit us from unexpected corners. 

But they are not impossible to manage, Simoniti added, and hence the elections in the European parliament in May this year will be crucial.

"Brexit, an increase in populism in the EU, the erosion of legal certainty in Hungary, relations between Serbia and Kosovo, Macedonians' angry reaction to the (country's) name change, these are all signs of turbulent times ahead, which will have far-reaching economic consequences”
Sergej Simoniti
president of the management board of the First Credit Insurance company (SID)
Adriatic Journal

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