Economics of Corona Pandemic in Slovenia

Pred dobrima dvema tednoma sem na povabilo Friedrich Ebert Stiftung napisal pregleden strokovni članek o ekonomiki korona pandemije v Sloveniji. Zajema objavljene analize z mojega bloga in nekaj novih stvari. Spodaj je kratek povzetek, cel članek pa je dosegljiv na tej povezavi.

Screenshot 2020-04-29 at 17.19.42

Summary

The pandemic is expected to hit hard the Slovenian economy. According to the baseline scenario of short-lived recession, annual GDP is projected to decline by 6.3% this year, which is comparable to the severity of the GDP downturn in 2009 (-6.8%). In case of a prolonged recession and a slow recovery, however, this year’s GDP is expected to fall by as much as 14%.

To contain the economic loss due to the pandemic, Slovenian legislators have enacted a comprehensive program of macroeconomic support measures aiming at preserving jobs, supporting households and businesses, through unemployment benefits, credit support, direct transfers, and tax allowances. To my calculations, these government measures, if applied fully for the period mid-March – end of May 2020, might compensate for around €1.8bn of lost GDP. Hence, if optimally implemented, these government support measures could significantly alleviate the recession by reducing the projected downturn by about 60% to just 2.5% of GDP in the event of a shorter recession.

The outlined economic policy measures will result in increased budget deficit and boosted public debt, but as I argue in this column, given the relatively low levels of Slovenia’s debt to GDP and the ECB’s supporting pandemic asset purchase program, the financing of policy measures may not pose a significant problem for Slovenia. It is also important to keep in mind that no government intervention would actually lead to even worse outcomes in terms of debt to GDP figures.

Major takeaways:

  • The pandemic is expected to hit hard the Slovenian economy by reducing the GDP in the range between 6% and 14%,
  • With proper implementation macroeconomic support measures, however, the government can save most of the jobs and mitigate the economic loss due to crisis by 60%,
  • The outlined economic policy measures will result in increased budget deficit and boosted public debt, though in the absence of government intervention public debt figures would deteriorate even more.
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