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Chamber of Commerce says economic damage of coronavirus will be grave

Ljubljana, 13 March - The Chamber of Commerce and Industry (GZS) said on Friday that the duration of the coronavirus crisis measures will be the key factor when it comes to the final scale of what will in any case be a significant blow to the economy. The measures cause fairly asymmetrical and unpredictable shocks, the GZS's chief economist Bojan Ivanc has assessed.

"The cancellations of mass events, conferences, the closure of borders to international transport, work disruption and other measures will have a strongly negative influence on Slovenia's economic growth in the second quarter of 2020," Ivanc wrote on Friday, adding it was hard to asses the effect on the value chain.

According to him, restrictions in the operations of major shopping centres would reduce consumption, which is partly moving online, the problem here being perishable goods.

Consumption and net exports are expected to go down, while investment will probably be less affected in the short-term.

"The effect of inventory is uncertain. It can impact GDP significantly in the short term, sometimes even by one to two percentage points. In retail part of the inventory will be written off, a part will probably be reduced since the supply of consumer products will be disrupted."

As for the major drops seen on financial markets in recent week, Ivanc argued "they were probably exaggerated, but this does not necessarily mean the lowest point has been reached".

All eyes are directed towards central banks, but apart from the Fed in the US they are not left with much manoeuvring space, as well as increasingly towards fiscal policy, he added.

A real chance exists that eurozone members will agree to temporarily lift the fiscal compact and Ivanc said the GZS feels "an increase in the expenditure of EU countries, even at the price of a bigger deficit, means lower cost than the outbreak of economic nationalism, which would hurt Slovenia disproportionally".

The pundit feels this at the same time opens a debate in Slovenia, where some have been calling for a scraping of the fiscal rule on balanced budgets.

"We feel that a rational approach will be needed here. The thing is that increasing public spending does not have an entirely linear effect on increasing (or reducing the drop) economic growth, mostly because Slovenia is very export-oriented," Ivanc noted.

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© STA, 2020