Current Economic Trends

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					current economic trends
                                                                                                Slovenian Economic Mirror,January 2010                         7
                                                                                                               Current Economic Trends

International environment                                                              Interest rates of central banks are still at record lows, while
                                                                                       lending conditions continued to deteriorate in the euro area
According to January’s forecasts by the IMF, the global                                also in the final quarter of 2009. The value of the three-
recovery is off to a stronger start than earlier anticipated                           month EURIBOR declined in January for the 15th month
but is proceeding at different speeds in various regions. The                          in a row, averaging 0.68% in the month as a whole.
first signs of global recovery were already visible at the                             The interest rates of the main central banks were left
end of 2009, but they vary considerably across countries                               unchanged at record lows also in January (ECB: 1.0%, FED:
and regions. In China, which unveiled one of the world’s                               0.0%, BoE: 0.5%). According to the ECB survey, lending
most extensive fiscal stimulus packages as early as in                                 conditions in the euro area also tightened in the last
November 2008, in the amount of 15% of GDP (USD 586                                    quarter of 2009; however, this time the number of banks
bn) and mainly aimed at boosting public infrastructure                                 reporting a tightening of credit standards was not more
spending and domestic demand, GDP growth intensified                                   than 3% higher than the number of banks reporting an
from quarter to quarter y-o-y, reaching 10.7% in the last                              easing. Estimates of conditions for approving loans to
quarter, and 8.7% in the year as a whole. In the US, GDP                               enterprises are fairly similar for small and large enterprises
increased at an annual rate of 5.7% in the fourth quarter                              and loan maturities, while the demand for loans from
of 2009 (quarter-on-quarter) according to the advance                                  small and medium-sized enterprises decreased slightly
estimate, recording the first y-o-y growth (0.1%) in four                              less than the demand from large enterprises. Debt
quarters. Even if the first estimate of the US GDP is subject                          restructuring is still among the main reasons for raising
to further downward revisions, the available data on                                   a loan. Banks expect lending conditions to be somewhat
growth structure show that the increase was primarily                                  tighter again in the first quarter of 2010 compared with
due to positive contributions from inventory investment,                               the last quarter of 2009, particularly for large enterprises.
exports and investment in computer equipment. In 2009,                                 Banks expect significantly stronger demand for loans
the US otherwise recorded the greatest GDP decline since                               from small and large enterprises, particularly for short-
1946 (-2.4%). Amid global economic recovery, largely as                                term loans. According to the survey data on lending
a result of massive fiscal and monetary measures, the                                  conditions for households, in the last quarter of 2009,
IMF revised its October forecast of global economic                                    lending conditions for purchasing a house tightened
growth upwards by 0.8 p.p. to 3.9%. At the same time,                                  much less than in late 2008 and early 2009; the tightening
there are still few indications that autonomous (not-                                  is set to be even less pronounced in the first quarter this
policy-induced) private demand is taking hold, at least in                             year, when banks also expect stronger demand for this
advanced economies, according to the IMF. In advanced                                  type of loans. The ECB lending survey for the euro area
economies, the recovery is still expected to be weak,                                  thus confirms the IMF expectations that lending is likely
with GDP remaining below its pre-crisis levels until late                              to remain sluggish this year and that large enterprises,
2011. The global recovery is propelled by key emerging                                 in particular, will try to offset the reduction in loans by
economies in Asia. Even if improving its forecast, the IMF                             issuing bonds; however, this can not entirely replace bank
also emphasises significant risks for the global economy,                              lending, especially in the euro area, where the financial
particularly the risks associated with a premature and                                 system is significantly more reliant on banks than it is in
uncoordinated exit from supportive policies and negative                               Anglo-Saxon countries.
impacts of impaired financial systems, while it also draws
attention to the negative movements on the housing                                     The euro continued to depreciate against main currencies
markets in some countries and especially to the impact of                              in January. The average exchange rate of the dollar
growing unemployment on household spending, as well                                    strengthened by 2.4% against the euro in December,
as high general government deficits and debt. .                                        to USD 1.4272 to EUR 1. The British pound sterling
                                                                                       appreciated against the euro (+1.9% to 0.8831 of GDP to
                                                                                       EUR 1), as did the Japanese yen (+0.7% to 130.33 JPY to
                                                                                       EUR 1) and Swiss franc (+1.7% to CHF 1.4765 to EUR 1).
Table 1: Economic growth forecasts by international institutions and IMAD’s assumptions used in the Autumn Forecast of
Economic Trends 2009
                            2009                                          2010                                                      2011
               IMAD        CONS        IMF        IMAD         EC        OECD        CONS         IMF       IMAD         EC        OECD        CONS         IMF
               Sep 09      Jan 10     Jan 10      Sep 09     Nov 09      Nov 09      Jan 10      Jan 10     Sep 09     Nov 09      Nov 09      Jan 10      Jan 10
 EMU             -3.9        -3.9       -3.9        0.4         0.7         0.9        1.3         1.0         1.6        1.5         1.7        1.6         1.6
 EU              -4.2        -4.0       -4.0        0.2         0.7        N/A         1.2         1.0        1.6         1.6        N/A         N/A         1.9
 DE              -4.8        -5.0       -4.8        0.9         1.2         1.4        1.8         1.5         1.5        1.7         1.9        1.6         1.9
 IT              -5.2        -4.8       -4.8        -0.2        0.7         1.1        0.9         1.0         0.9        1.4         1.5        1.2         1.3
 AT              -3.5        -3.5       N/A         0.0         1.1         0.9        1.3        N/A         1.6         1.5         2.2        1.7         N/A
 FR              -2.1        -2.2       -2.3        0.6         1.2         1.4        1.4         1.4         1.7        1.5         1.7        1.6         1.7
 UK              -4.7        -4.7       -4.8        -0.3        0.9         1.2        1.5         1.3         1.8        1.9         2.2        2.2         2.7
 ZDA             -2.8        -2.5       -2.5        0.9         2.2         2.5        2.9         2.7         3.0        2.0         2.8        3.1         2.4
Source: IMAD Autumn Forecast of Economic Trends (September 2009). OECD Economic Outlook 2/2009 (November 2009). European Commission Autumn Forecast (November 2009).
Consensus Forecasts (January 2010). IMF World Economic Outlook Update (January 2010).
                            8                                              Slovenian Economic Mirror, January 2010
                                                                           Current Economic Trends

Figure 1: Lending conditions in the euro area and                                                                                                                           of increased demand for these commodities due to the
expected loan demand                                                                                                                                                        nature of recovery in developing countries focusing on
                                                                              Loans to enterprises in the past three months                                                 infrastructure investment to revive the economy. Despite
                                                                              Demand from enterprises in the next three months                                              high inventory levels and substantial spare capacity in
                                                                              Housing loans in the past three months
                                                                              Demand for housing loans in the next three months                                             many commodity sectors, the probability of higher-than-
                                                                                                                                                                            expected commodity price rises (the IMF forecast 5.8%
Difference between the number of banks that deteriorated

                                                                                                                                                                            growth of non-fuel commodities in 2010) represents one
    and those that improved their lending conditions, %

                                                                                                                                                                            of the risks for the global economy in 2010.
                                                                                                                                                                            Figure 3: Movements of commodity prices
                                                                                                                                                                                                                 Commodity price index                                Food price index
Description: According to January's forecasts by the IMF, the global recovery is off to a stronger start than earlier anticipated but is proceeding at different speeds in various regions. Interest rates of central banks are still at record lows, while lending conditions continued to deteriorate in the euro area also in the final quarter of 2009. As in previous months, the value of merchandise exports and production in manufacturing were the only short-term indicators of economic activity to increase in November, while other indicators declined, suggesting that domestic demand remains weak. At the y-o-y level, 2009 saw higher output in hydroelectric power plants and lower output in the nuclear power plant, while electricity consumption dropped, most notably in the metal industry. The volume of road freight transport declined y-o-y also in the third quarter of 2009 and was in line with expectations, but the deterioration of rail transport was higher.
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