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Europe > Slovenia, Republic of

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Cover IMF Staff Country Reports
Euro Area Policies: 2024 Annual Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries
International Monetary Fund. European Dept.
The 2024 Article IV Consultation explains that the euro area is recovering gradually, with a modest acceleration of growth projected for 2024, gathering further speed in 2025. Increasing real wages together with some drawdown of household savings are contributing to consumption, while the projected easing of financing conditions is supporting a recovery in investment. A modest pickup in growth is projected for 2024, strengthening further in 2025. This primarily reflects expected stronger consumption on the back of rising real wages and higher investment supported by easing financing conditions. Inflation is projected to return to target in the second half of 2025. The economy is confronting important new challenges, layered on existing ones. Beyond returning inflation to target and ensuring credible fiscal consolidation in high-debt countries, the euro area must urgently focus on enhancing innovation and productivity. Higher growth is essential for creating policy space to tackle the fiscal challenges of aging, the green transition, energy security, and defense.
Keywords:
EU institution; EU industrial; headline inflation; EU climate; two-sided inflation risk; Inflation; Labor markets; Fiscal consolidation; Europe; Global
Cover IMF Staff Country Reports
Republic of Slovenia: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper focuses on boosting productivity in Slovenia. Slovenia’s ageing population sets a constraint on the contribution of labor to gross domestic product in the end.Only achieve sustained increases in income and living standards can, therefore, through investment in physical and human capital and, more importantly, through enhancing productivity, historically the key growth driver. This paper summarizes historical trends in growth and productivity in Slovenia, examines the country’s strengths and weaknesses in terms of key factors affecting productivity identified in the literature. Since the scope for future labor contributions to growth in Slovenia is limited for demographic reasons—apart from further improvements to labor quality—the focus of economic growth policies should be on reinvigorating private investment, which has been low over the past decade, and pursuing labor and product market reforms that boost total factor productivity growth.
Keywords:
productivity trend; firm leverage; labor market indicator; I. shift share methodology; EU growth composition; Productivity; Total factor productivity; Labor force; Private investment; Europe; Central and Eastern Europe; Global
Cover IMF Staff Country Reports
Republic of Slovenia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Slovenia
International Monetary Fund. European Dept.
The 2024 Article IV Consultation highlights that Slovenia’s economy recovered well from the pandemic, only to be hit by spillovers from the war in Ukraine, followed by severe flooding in 2023. After a strong recovery in 2021, growth slowed in 2022 because of adverse energy price spillovers from the war in Ukraine and supply chain disruptions. Growth is expected to accelerate, driven by a recovery in domestic demand. Inflation is projected to continue to decline. The outlook remains subject to high uncertainty, with risks stemming from an intensification of regional conflicts, renewed commodity price volatility, and lower trading partners’ demand on the external side and labor shortages and broader capacity constraints on the domestic side. Severe weather events also remain a risk. Given underlying increase in core public spending in recent years, age-related spending pressures, and relatively high public debt, sustained fiscal consolidation and fiscal reforms, including in taxation, the pension, public wage and health systems, are needed to underpin long-term public debt sustainability. Deeper structural reforms would help boost growth and foster income convergence. Longer-term limits on employment growth call for reforms enhancing productivity growth, including improving regulatory quality, building human capital, and deepening the financial sector.
Keywords:
renewed commodity price volatility; money market rate; government finance statistic yearbook; expenditure category; emergency flood relief legislation; Natural disasters; Labor markets; Europe; Global; Middle East
Cover IMF Staff Country Reports
Slovak Republic: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper focuses on drivers and impacts of inflation in Slovakia. High and volatile inflation in Slovakia in recent years seems to be mainly driven by volatile food prices amplified by the larger consumer price index weight of food items. Other drivers include the large impact of imported inflation, elevated profit margins of domestic firms, and higher wage growth. High inflation could erode external competitiveness through higher unit labor costs, but there is no clear evidence of this so far. Domestically, high inflation has had uneven impacts across households and firms. Firms with the largest cost increases experienced a deterioration in their financial situation, and certain categories of households, including those with low-income levels and the elderly, are particularly vulnerable to the rising cost of living. The recent fall in inflation is projected to continue, but strong unit labor cost growth or an increase in profit margins could keep inflation elevated and undermine competitiveness.
Keywords:
price change; unit labor cost; inflation in Slovakia; B. income convergence; D. policy implication; Inflation; Productivity; Total factor productivity; Aging; Europe; Central and Eastern Europe; Baltics
Cover IMF Working Papers
Emigration, Business Dynamics, and Firm Heterogeneity in North Macedonia
Ninghui Li
and
Thomas Pihl Gade
High emigration rates are a challenge in the Western Balkans. High emigration rates might lead to inadequate skilled labor and affect firm creation, capital formation, and economic convergence. The 2021 North Macedonia census reveals that more than 12.4% of North Macedonians live abroad. To assess the consequences, we estimate the impact of emigration on the number of firms and capital formation. Business dynamics can affect emigration reversely. To alleviate the endogeneity bias, we use a shift-share instrument with the historical diaspora networks and destination countries’ GDP growth rate as a source of exogenous variations. Our results show that (1) In the short run, a 1 percentage point increase in the emigration rate leads to a 2.91% decrease in the number of firms in the area of origin; (2) The long-run effects of emigration on the number of firms are less negative than the short-run impacts; (3) Emigration mainly reduces the number of micro and small firms; (4) Emigration affects the number of firms and capital formation more in the industrial sector than the other sectors, through the skilled labor shortage channel. This paper contributes to the literature on emigration and provides implications and policy considerations for developing countries, where high emigration rates are prevalent.
Keywords:
Emigration; Labor market; Firm dynamics; Capital formation; North Macedonia; Panel data.; emigration rate; business dynamics; firm Heterogeneity; emigration challenge; emigration effect; Migration; Unemployment rate; Industrial sector; Labor markets; Labor shortages; Global
Cover IMF Working Papers
Firm Leverage and Boom-Bust Cycles
Can Sever
This paper explores the dynamic relationship between firm debt and real outcomes using data from 24 European economies over the period of 2000-2018. Based on macro data, it shows that a rise in credit to firms is associated with an increase in employment growth in the short-term, but employment growth declines in the medium-term. This pattern remains similar, even when the changes in credit to households are accounted for. Next, using data from a large sample of firms, it shows that firm leverage buildups predict similar boom-bust growth cycles in firm employment: Firms with a larger increase in leverage experience a boost in employment growth in the short-term, but employment growth decreases in the medium-term. Relatedly, the volatility of employment growth increases in the aftermath of firm leverage buildups. Finally, this paper provides suggestive evidence on the role of a financial channel in the relationship between firm leverage buildups and employment growth. The results show that a rise in firm leverage is associated with a persistently higher debt service ratio, pointing the drag on finances. Consistently, boom-bust growth cycles in the aftermath of firm leverage buildups are not limited to employment growth, but are also pronounced for investment. Moreover, the medium-term decline in firm employment growth as predicted by leverage buildups becomes even larger if aggregate financial conditions tighten. The findings are in favor of “lean against the wind” approach in policy making.
Keywords:
Firm leverage; firm debt; household debt; leverage cycles; employment; investment; boom-bust cycles; ORBIS; leverage buildup; employment growth; leverage cycle; growth cycle; cycles in the aftermath; Business cycles; Credit; Consumer credit; Credit booms; Europe; Global
Cover IMF Staff Country Reports
Republic of Slovenia: 2022 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2022 Article IV Consultation discusses that Slovenia recovered quickly from the pandemic, with gross domestic product increasing by more than 8 percent in 2021, largely driven by exports and private consumption. Strong economic performance has continued into 2022, but growth slowed significantly in the third quarter as spillovers from the war in Ukraine and rising prices weighed on economic activity. Slovenia recovered quickly from the pandemic but Russia’s war in Ukraine is posing new challenges, especially the negative terms of trade shock. A center-left government took office in June, with a broad social and green reform agenda. Growth is expected to slow as external demand declines, higher prices hurt consumption, and supply constraints persist. Inflation will likely remain elevated. The economic outlook is uncertain, with significant downside risks stemming from the escalation of the war, further supply disruptions, the tight labor market, and high inflation. Policies should focus on providing targeted support to those affected by high commodity prices, while maintaining prudent fiscal and macroprudential stances, and on the continuation of structural reforms.
Keywords:
money market rate; government finance statistic yearbook; rising prices; mitigation measure; green transition; expenditure category; Energy prices; Inflation; Labor markets; Fiscal stance; Europe
Cover IMF Working Papers
The Fiscal Multiplier of European Structural Investment Funds: Aggregate and Sectoral Effects with an Application to Slovenia
Mr. Raphael A Espinoza
In this paper, we estimate the aggregate and sectoral fiscal multipliers of EU Structural Investment (ESI) Funds and of public investment at the EU level. We complement these results with a specific application to the case of Slovenia. We first analyze aggregate data and find large and significant multipliers and strong crowding-in of private investment. Our main findings show that positive shocks to ESI Funds are followed by an increase in output that ranges from 1.2 percent on impact, to 1.8 percent after 1 year, and by an increase in private investment between 0.7 and 0.8 percent of GDP. We address country heterogeneity by dividing countries according to key characteristics that have been known to affect multipliers. In particular, we find higher multipliers in a group of CEE countries that are important recipients of European funds and are characterized by fixed exchange rate regimes and sound public investment governance (e.g. Croatia and Slovenia). We also complement the aggregate analysis by estimating the effect of different types of public investment and the effect of public investment on different sectors of the economy.
Keywords:
aggregate multiplier; sectoral multiplier; aggregate analysis; public investment; impact multiplier; Public investment spending; Private investment; Public employment; Manufacturing; Employment; Eastern Europe
Cover IMF Staff Country Reports
Republic of Slovenia: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Slovenia
International Monetary Fund. European Dept.
This Article IV Consultation highlights that the continued structural reforms are key to ensure long-term prosperity, while strengthening the economy’s resilience to shocks. Effective implementation of the recently enacted reforms of vocational training, apprenticeship, and adult education would help address skill shortages, support employment of younger and older people, and boost productivity growth. Macro-financial legacy issues remain in bank and corporate balance sheets, including small and medium enterprises’ nonperforming loans. Structural challenges persist with low productivity growth, skills shortages, high tax wedge, heavy regulatory system, and extensive presence of state-owned enterprises. Policies should focus on fiscal and structural reforms to rebuild fiscal buffers and increase productivity. Slovenia’s external position in 2018 is assessed as substantially stronger than suggested by fundamentals and desirable policies; however the current account is expected to revert toward its norm in the medium term. Continued structural reforms are key to ensure long-term prosperity, while strengthening the economy’s resilience to shocks. Effective implementation of the recently enacted reforms of vocational training, apprenticeship, and adult education would help address skill shortages, support employment of younger and older people, and boost productivity growth.
Keywords:
ISCR; CR; appraisal; item; supplementary information; update of the Draft Budget Plan; government finance statistic yearbook; outturn data; near-term growth prospect; growth-enhancing tax; Fiscal stance; Wages; Global; Europe
Cover IMF Working Papers
The Re-Emerging Privilege of Euro Area Membership
Mr. Johannes Wiegand
When the euro was introduced in 1998, one objective was to create an alternative global reserve currency that would grant benefits to euro area countries similar to the U.S. dollar’s “exorbitant privliege”: i.e., a boost to the perceived quality of euro denominated assets that would increase demand for such assets and reduce euro area members’ funding costs. This paper uses risk perceptions as revelaed in investor surveys to extract a measure of privilege asscociated with euro membership, and traces its evolution over time. It finds that in the 2000s, euro area assets benefited indeed from a significant perceptions premium. While this premium disappeared in the wake of the euro crisis, it has recently returned, although at a reduced size. The paper also produces time-varying estimates of the weights that investors place on macro-economic fundmentals in their assessments of country risk. It finds that the weights of public debt, the current account and real growth increased considerably during the euro crisis, and that these shifts have remained in place even after the immediate financial stress subsided.
Keywords:
WP; euro; area membership; euro area; euro crisis; exorbitant privlege; investor perceptions; time dummy; investor perception; governance framework; Euro premium; euro adoption; area privilege; membership premium; Credit ratings; Unemployment rate; Currencies; Exchange rate arrangements; Europe