Alumni UP FM round table: Current economic situation in Slovenia

On 16 June 2022, the 1st meeting of the Alumni Club and other stakeholders of UP FM took place, within which a round table entitled Current economic conditions in Slovenia was organized. Before the start, all participants and guests were addressed by the Dean of UP FM assoc. prof. Tatjana Horvat, and assoc. prof. Armand Faganel, as a representative of the UP FM Alumni Club.

Prof. Štefan Bojnec introduced the cost pressures on prices arising from the instability and growth of energy prices (oil, gas, and electricity), which appear as inputs in production and are a significant cost in household consumption. While energy markets are more monopolized or oligopolistic, there is more competition in agricultural and food markets, which are subject to rising costs of raw materials and supplies, including energy prices, but are expected to start in the medium term to calm down after the shocks that followed the energy crisis and the war in Ukraine. In the case of energy and food, these are inelastic demands, which gives bidders the opportunity to achieve significantly increased revenues and profits in the very short term through relatively high price increases and relatively small drops in consumption. Expansionary monetary and fiscal policies have had a strong impact on inflationary pressures. Certain comparisons in economies are possible with the 1970s when the shock in the oil markets was followed by rising prices and later built-in inflation expectations, and excessive borrowing at low-interest rates and their subsequent rise plunged several economies into external debt problems. Therefore, the intermediate question is whether we have learned anything from historical experience in the field of various economic policies and practices.

Asst. prof. Patricia Blatnik pointed out that in healthcare we are facing many problems left by the covid crisis. Also this autumn, the profession predicts new versions of the SARS-CoV-2 virus, as well as new waves of influenza and the spread of infections with respiratory viruses. Respiratory diseases will certainly be a problem because due to anti-crown measures we have practically not become infected with other viruses, which means that we are very poorly infected. If we do not want the health care system to be on the verge of collapse, the immediate priority should be to regulate primary health care, where 130 thousand people are currently without a chosen personal doctor, 200 thousand women without a chosen personal gynecologist, and a personal doctor cannot usually be called, nor to get the necessary medical services from him. The shortage of doctors results in mass visits to emergency centers, where overburdened internists work, which is consequently lacking in other parts of health care, and where waiting times are then extended beyond all reasonable limits. In Slovenian health care, it would be necessary to increase health expenditure by about 1 percentage point of gross domestic product (GDP). We now spend 8.5 percent of GDP on it, with Germany paying 12 percent and Austria 11 percent of its GDP. We are still facing the problem of long-term care, where it would be necessary to allocate an additional percentage point of GDP if we want to regulate this area. The key question for new decision-makers is therefore where to collect additional taxes of 2 percent of GDP. However, we must be aware that simply increasing the amount of money for health care will not in itself increase access to health services, but it could increase the growth of prices in health care. More money for equally inefficient healthcare is nonsense, but it often poses a threat that we have already recognized through expansionary monetary and fiscal policies in the last two years, as a result of rising prices in all areas. The same can happen in healthcare, where everything from medicines, medical devices, beds, food, wages and the like will become more expensive.

Assist. Jan Frančeškin focused on tourism. The period of accelerated globalization and prosperity in the world brought Slovenian tourism quite a few records between 2015 and 2019 in terms of the number of arrivals and overnight stays. However, everything changed with the sudden onset and rapid spread of the COVID-19 pandemic. During the mentioned pandemic, the tourism industry was subjected to a number of challenges, which were caused by very non-synchronous measures of the countries within the EU and certain unclear measures in Slovenia. During the pandemic, winter tourism was significantly more affected as the spread of the disease slowed down somewhat during the summer season. In addition to COVID - 19, 2022 will also bring increased inflation and geopolitical friction in the world. For Slovenian tourism, this means another loss of certain groups of guests. It is also necessary to mention the Asian guests who will come to Europe and consequently to Slovenia in smaller numbers. Slovenian accommodation providers will once again have to count on a domestic guest who, with the reopening of borders, is increasingly drawn to distant places. They are also counting on a more extensive return of guests from Germany, Austria, and Italy, who traditionally spend the most overnight stays in Slovenia among foreign guests. On a global scale, however, expectations are a bit more optimistic, as we are likely to return to the 2019 figures in Europe. The lack of pilots and the limited production of aircraft by Boeing and Airbus will have a strong impact on air connections, especially in smaller cities and slightly less interesting tourist destinations. Below the line in 2022, we expect a good if not a great summer season, and we are looking at the period after September with a little less optimism.

Assoc. prof. Ana Grdović Gnip emphasized that fiscal policymakers face much greater challenges than ever before. On the one hand, we should ensure that the sustainable goals set out in the 2030 Agenda are achieved and promote the transition to a more sustainable, green, and digital economy. On the other hand, pandemics have led to an increase in public debt at the highest levels due to the adopted expansionary budgetary policies to protect jobs and workers. It is clear that ensuring a sustainable economy requires, among other things, significant investment capacity, which policymakers are forced to withdraw and/or stop during a pandemic. High public debt carries a heavy burden on economies, and despite the fact that research has shown that public investment is the best catalyst for economic growth, as it brings positive indirect effects in the short term and helps converge public debt in the long run, fiscal space in Slovenia and other EU economies seems relatively small. The tight fiscal space is still linked to the onslaught of inflation, which increases uncertainty in the economic environment, making economic policy-making even more difficult.

Prof. Matjaž Novak initially referred to the remark of dr. Ana Grdović Gnip that economic policy makers are in a difficult position. This is true, as a rule, they are always in a difficult position at the risk of a crisis, but this time the situation is slightly different. The risks to economic growth stem from the risks of geopolitical stability. If in past economic crises the central question was which economic instruments to use, in what way and to what extent to fight the recession, today the central question is whether politics can stabilize international geopolitical frictions that have triggered economic imbalances in energy and food markets. It should be pointed out that after a long time, stagflation scenarios are reviving, a phenomenon when we have both inflation and declining or negative GDP growth. On the other hand, it should also be pointed out that some macroeconomic indicators in the EU are, however, above expectations given the current uncertainty. Indicators of activity in Germany are favorable given the situation, the labor market in Slovenia, for example, is at the lowest unemployment rate, due to the tourist season and the need for additional labor in agriculture, the demand for labor is further strengthened, cash reserves of the population as well as maintaining consumption at a relatively high level. This, in turn, gives politicians an extension of time to try to find a solution for a central resource that triggers general macroeconomic risks.

In conclusion, the round table answered many questions about the current economic situation and challenges in Slovenia in the light of European and global economic conditions, which are especially related to inflation factors on the cost side (prices of energy and reproductive materials due to broken or poorly functioning supply chains), which, through inflation, affects the cost of living (energy and food prices). It also answered a question about possible measures of temporary control or temporary regulation of a specific market and price. Particular emphasis was placed on issues related to health, tourism, monetary, fiscal, and economic growth policies.

Monday, June 20, 2022 | FM | Research

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