Fall in Russian ruble to hit Slovenian exporters

Fall in Russian ruble to hit Slovenian exporters
Assembly of Gorenje washing machines at Zaječar, Serbia.
By bne IntelliNews April 18, 2018

The fall in the Russian ruble after the imposition of new US sanctions and the beginning of capital outflows from Russia could worsen the outlook for growth in Slovenia’s export sector, the Slovenian central bank Banka Slovenije warned on April 17. 

Slovenia is an export oriented country and in 2017 the country’s external trade reached the highest level in the recent years. Russia is one of its key markets outside of the EU, where major Slovenian companies such as home appliances manufacturer Gorenje and pharmaceutical giant Krka are active.

“[R]isks to global economic growth have increased significantly in recent weeks,” warns  Banka Slovenije's latest Summary of Macroeconomic Developments. “The increased tension in the West’s relations with Russia and China has already increased the uncertainty on international financial markets, and could lead to a decline in confidence in the real sector, slower growth in international trade and commodity price inflation on global markets. American sanctions have brought a fall in the ruble, and the beginning of capital flight from Russia.

Despite the sanctions adopted after the poisoning of former spy Sergei Skripal in the UK, for now Slovenia’s export prospects remain highly favourable, at least on the basis of the latest medium-term GDP forecasts for trading partners, Banka Slovenije said. Still, the costs of the sanctions to Russia are staggering, according to bne IntelliNews calculations, and with Russia an important market for the likes of Gorenje and Krka, there could be tough times ahead. 

Gorenje’s revenues reached their highest level in the last five years in 2017, the company said on January 12. Currently its largest market is Eastern Europe, and sales in Russia — its single most important market — were up 21%. 

Krka Group, meanwhile, made a net profit of €110.1mn in January-September 2017, an increase of 37% against the same period of 2016. Like Gorenje, Krka’s largest sales region is Eastern Europe, where sales in January-September totalled €271.4mn, which is 29.2% of overall sales. The key factor was successful operations in Russia, the company said, though added that good results were reported by the majority of the region’s markets. 

According to the Slovenian central bank, another of the areas of potential imbalance is the labour market, or more precisely growth in labour costs owing to a shortage of labour. Growth in average wages, and even more notably in the wage bill, increased sharply at the end of last year and remained rather high in January. While the wage growth in November and December was predominantly attributable to extraordinary payments, in January there was a rise in basic wages.

“Following the sharp fall in unemployment, and given the numerous indicators suggesting firms are having difficulties in finding qualified workers, the risks of higher growth in labour costs are increasing. Past experience suggests that in an environment of labour shortages wage growth is not curbed even by large-scale hiring of foreign labour,” Banka Slovenije's report reads.

The average monthly gross wage in Slovenia amounted to €1,638 in February, decreasing 1.3% in nominal terms and 2% in real terms compared to January, the statistical office announced on April 16. The net wage in Slovenia totalled € 1,066.33 in February, down by 1.1% in nominal terms against January and in real terms by 1.8%. In annual terms, average gross earnings for February increased in nominal by 3.6% and in real terms by 2.4%.