Sunday, November 25, 2007

Economic news from Slovenia

Global Voices Online links to two stories about Slovenian economy:
- 70,000 Slovenians protest in Ljubljana, demanding higher wages, to compensate for rising inflation;
- The apartment prices in Slovenia have been rapidly rising (here are up-to-date numbers).

Housing bubble and rising inflation is a familiar picture to Latvians and many other countries in Eastern and Central Europe, as documented by Eastern European Economy Watch or some of my own posts.

Slovenia, however, was supposed to be the success story, immune from the overheating trends seen elsewhere. Their economic fundamentals are still quite good. But this reminds me that Latvian economy was viewed as the Eastern European success story just two years ago. ("Safe investment opportunity with 7-8%/year growth".) Too large amounts of foreign money pouring into a country in too short time can create economic bubbles quickly.

2 comments:

pengovsky said...

I was only recently made aware of the influence foreign capital has in Slovenia. I'm not an economist and am usually obvlivious to more detailed economy data, but apparently the recent artificial political crisis scared foreign investors on Ljubljana Stock Exchange which percipitated a noticable slump in the trading, with the indices losing 2%+ on average over the past week.

As far as Slovene growth in GDP is concerned, it is primarly fueled by investments in higway construction which is being financed by huge loans which the government secured by the state. Which of course means that a) growth is not organic and b) loans will have to be repaid in a possibly more severe economic climate, cripling Slovenia's economy more than necesary.

Latvian abroad said...

There are many ways how foreign money can flow into country. Stock exchange is one, real estate investors is another (Dr. Filomena's post indicated there's increasing number of foreigners buying real estate in Slovenia). And some of government's loans may be financed from abroad (either directly or with the local bank borrowing from abroad and then lending to government).

Over last years, Latvia has borrowed a lot from abroad and the trend here is clearly unsustainable. I haven't followed Slovenian economy at all, but your comment suggests something similar might be going in your country as well (in much milder form than Latvia, I suspect).