Labor market is starting to consolidate

Monday, 29. August 2011, 10:58

It will help health insurance companies

Signs of the end of recession and start of recovery of economy are present even from the beginning of 2010. But first positive signals from labor market occured only in the end of the year. Substantial part of incomes of health care system is dependent on the development of labor market. So we could expect better times for health insurance companies. But the brake are payments of state.

Forces which slow down economic growth

Forces which accelerate economic growth

Figure 1: Overview of impacts which slow and accelerate the growth of economy

Weak external demand. It is a consequence of „secondary“ bottom of economic recession. But it is not a comeback of recession. Flexible reaction of economy on the end of recession in the first three quarters of 2010
Uncertainty in the progress of EMU Releasing of inner forces of economy in the case of successful consolidation of public finance.
Restrictive impact of consolidation program of government. Relatively stabilized development in German economy (which is for SR the most important partner)

We expect, that macroeconomic development in Slovakia will be in medium-term horizon affected by these factors:

  • By the effect of secondary weakening of growth in outer environment. Governments reacted on global recession by supporting measures. Their effect fades away and it will probably result in temporary weakening of growth of west-european economies. There will be generated sort of „secondary bottom“ of recession, which will not be by far as deep as the first (in 2009). Conjunctural situation in Germany (main partner of Slovak economy) is mainly positive, which also leads to expectation, that „secondary bottom“ will be only slight slowing down of growth and not the renewal of recession.
  • By realization of consolidation program of government. Its impact is restrictive in short run, in medium-run and long-run horizon it can support economic growth.

On the basis of these processes and current progress tendencies we expect subsequent macroeconomic development:

Economic growth: In short-run horizon there will temporarily prevail forces slowing down economic growth, in medium-run horizon forces accelerating the growth of economy will gain on importance. Economic growth will after relatively strong growth in first half-year of 2010 (4,7%) temporarily slow down in 2011 (it showed even in third quarter of 2010). To this slowdown contributed also substantial year-to-year worsening of results of agriculture (climate impacts). For year 2011 we expect so far the rate of growth of GDP at the level of 3%, which is rather conservative estimation. In order not to overestimate the incomes of health insurance companies (see further) we deliberately work with conservative estimations. Even in the end of the year 2011 can the economic growth repeatedly accelerate. From 2012 we expect relatively high rates of economic growth, but they will not attain the exceptional values from years 2006 – 2008 (when there were attained values up to 10,4%).

Price level: After very low growth in price level in years 2009 and 2010 we can expect its accelerating growth, which will to some extent compensate the stagnation of prices (or postponeable raising of prices) from the period of previous recession. Substantional slowering of growth in price level, which is reflected also in data in Figure 2, was a demonstration of weakening of demand. Renewal of growth in demand will probably bring a wave of adjusting of price and cost structures. We probably need to calculate with recovery of growth in prices. This can be supported also by corrections of regulated prices of energies (which government politically impeded in last years) and also by notable rise in agricultural commodities (consequence of adverse climate impacts in 2010).

Employment and wages: The problem is, that development in labor market substantionally lags after the development of production. That’s why the change in development in labor market will happen only in 2011 (even the growth in GDP is present from the first quarter of 2010). We can reveal some positive signals:

  • There is a recovery of flows in labor market. For instance the decline of unemployed from registers in November 2010 was not only bigger than in the same month of 2009, but in was bigger than in the same month in „before-recession“ years 2007 and 2008! Actually, also the inflow of unemployed to registry in November 2010 was logically higher than in years before recession. But anyway it is a signal of successfully ongoing restructuring (high inflow and outflow of unemployed).
  • The number of vacancies has increased in November year-to-year by cca. 42%. Even thanks to this fact the number of registered unemployed attributable to one vacancy plummeted to 47. It is still a very high number, but it was 67 a year before.
  • Unemployment rates measured from September to December are slightly lower than in the same months of preceding year (in December 2010 it was 12,5%, in previous year 12,7% – Figure 1). That is an essential turn: until August were values for year 2010 less favorable than in previous year.

These signs of improvement of situation in labor market in the end of 2010 cause expectations of at least slight improvement of parametres of employment and wages in year 2011. And that is exceptionally important for the estimation of incomes of health insurance comapanies.

In short-run outlook we calculate rather with very careful growth in average wage and the number of employed. Uncertainty accompanying retreating recession does not allow to calculate with higher boom of employment or more generous wage policy of companies.

 

2009

reality

2010

estimation

2011

prognosis

Figure 2: Macroeconomic overview

GDP in billion € in current prices 1)

63.33

65.80

69.53

Real year-to-year change of GDP in %

-4.7

3.9

3.0

Average year-to-year change of consumer prices by harmonized index in %

0.9

1.1

3.5

Average year-to-year change of prices of industrial producers in %2)

-2.5

-2.4

3.2

Average monthly gross wage in €

745

768

799

Year-to-year change in average wage in %

3.0

3.1

4.1

Balance of public finance in million eur;

-4 999.4

-5 108.5

-3 448.5

Balance of public finance, % of GDP

-7.9

-7.8

-4.9

Employment in thousands of persons (by sample survey of workforce)

2 365.8

2 297.2

2 331.7

Unemployment in thousands of persons (by sample survey of workforce)

324.2

381

367.5

Rate of unemployment in % (by sample survey of workforce)

12.1

14.2

13.6

Consumption of households, real year-to-year change in %

-0.7

-0.3

0.2

Balance of current account of payment balance in billion €

-2.0

-1.4

-1.4

Balance of current account as % of GDP

-3.2

-2.2

-2.0

Note: 1) – with a use of conversion exchange rate, 2) goods for domestic country

Source: reality by data of Statistical office of SR and Ministry of finance of SR, estimations and prognosis by Health Policy Institute

Chart 1: Rate of registered unemployment by months in years 2009 and 2010

Source: Statistical office of SR

Estimation of tax incomes of health insurance companies

Owing to hard to predict fluctuations of non-tax incomes of insurance companies we forecast only tax incomes. They comprise prevalent part of their incomes (incomes from premium).

We expect, that growth in tax incomes of health insurance companies in 2011 will be supported by expected recovered growth of employment and stronger growth of wages than in the period of recession (as we mentioned earlier). At the same time the growth of tax incomes will be weakened by sharp decline of payments of state for its insured persons:

  • The rate of premium for the insured of state is at lower level than in years 2009 – 2010. It is a result of political decision making during realization of restrictive fiscal policy.
  • The number of persons, for whom the premium pays state, will plunge due to decrease in number of unemployed.
  • The payment of state in 2011 is calculated from average wage in 2009. In 2009 was the growth of wages so far the lowest since the formation of Slovak republic. Decreased dynamics of average wage, which enters the formula for calculation of payment of state, is helping the year-to-year fall in volume of payment of state.

The total volume of estimated tax incomes in 2011 is thus influenced by the rise of contributions from wages and by the drop of payments of state for defined circle of persons. (Actually, we are aware of the fact, that tax incomes of health insurance companies are not composed only of these two items, but these have the crucial impact.)

Total tax incomes of health insurance companies in 2011 thus according to our expectations will grow very slightly (nominally by 2,3%). But it is a probable slowering of growth of tax incomes against the growth in 2010. From macroeconomic point of view it is a strange situation: After overcoming the recession, the growth of incomes of health insurance companies is slowering. The reason is not the macroeconomic parameters, but the political decision about setting of payments of state.