SLOVAKIA’S economy in the last three months of 2013 performed better than the eurozone average, fuelled by recovering industry and even good weather.

But that growth was not enough to make a significant dent in high unemployment.
Gross domestic product (GDP) increased in the last quarter by 1.5 percent year-on-year, and by 0.4 percent compared to the previous quarter, according to a flash estimate of Slovakia’s Statistics Office released on February 14.

After seasonal adjustment, the economy grew by 1.3 percent and at current prices the GDP reached €18.390 billion, an increase of 1.5 percent compared to the same period in 2012.

The flash estimate is rosier than the expectations of the market watchers, who forecast 1.2 percent growth. Several other eurozone economies also beat growth forecasts, said Ľubomír Koršňák, an analyst with UniCredit Bank Czech Republic and Slovakia, who cited Germany, France and the Netherlands.

Economies of the eurozone posted 0.5-percent growth in the fourth quarter year-on-year, while the whole European Union posted 0.4-percent growth, according to a Eurostat estimate released on February 14. The quarter-on-quarter growth of GDP in the eurozone stood at 0.3 percent, while within the whole of EU the economy grew 1 percent compared to the third quarter in 2013, the SITA newswire reported.

The fastest growing economies in the EU were Romania (5.1 percent growth year-on-year), Latvia (3.6 percent) and Lithuania (3.3 percent); Hungary and the United Kingdom both grew at 2.8 percent when compared to the fourth quarter last year.

Romania grew 1.7 percent quarter-on-quarter, taking the lead among the EU economies, followed by the Czech Republic at 1.6 percent and Lithuania at 1.2 percent. Cyprus, Finland and Estonia slipped into recession, according to Eurostat, as reported by SITA.

The flash estimate suggests that the growth for the whole of 2013 also exceeded the expectations of the market, Andrej Arady, macroeconomist with the VÚB Bank, wrote in a memo, adding that the second half of 2013 was even stronger than original estimates.

Market watchers suggest that the numbers were not completely unexpected, as monthly data from different sectors already hinted at the positive performance in Q4.

“Over the past months of 2013, the growth of industrial production significantly increased, which year-on-year was higher by 10 percent,” said Juraj Valachy, senior analyst with Tatra Banka.
Warm weather could also have contributed to the positive development of the economy via the construction sector, Valachy said.

“It seems that this sector [construction] might have left the worst times behind, even though the 1-percent increase in December is not completely a true reflection of reality,” he added.

Though the details of the GDP growth will be published only on March 5, Arady expects that exports continued to fuel the growth, but that “private consumption, obviously, too contributed to the growth slightly more than during the previous quarter”.

Arady also assumes that industry was again the main engine behind the growth of the Slovak economy.
“At the end of the year the production not only grew to two-digit numbers, but production gained a healthier distribution among several segments,” he said.

Martin Baláž, an analyst with Slovenská Sporiteľňa, suggests that for particular components of the GDP, the contribution of household consumption might have increased, as suggested by the growing retail revenues, up 0.6 percent year-on-year in Q4.

“In addition to that we might see some ease in the decline of investments,” wrote Baláž, adding that “on the contrary, after a strong third quarter, the contribution of foreign trade might be lower”.

Labour market

In the fourth quarter, a total of 2.196 million people were employed in Slovakia, which compared to the same period in 2012, represented 0.1-percent growth. Seasonally adjusted total employment remains at the same level as compared to the fourth quarter of 2012 and rose by 0.3 percent as compared to the third quarter of 2013.

Baláž interprets the numbers as positive signs in the labour market.

“The increase of growth at the end of the year has brought moderate stabilisation in the labour market,” said Arady.

In the same period in 2012, employment was inflated by the speedy planning of layoffs due to legislative changes in 2013. “Though the dynamics of the labour market are turning in the right direction, it is still a very moderate revival,” Arady said.

Expectations

The relatively strong positive sentiment in the eurozone suggests that the economic revival should also continue in the upcoming months, according to Baláž.

“The growth of the economies of our main trading partners should also have a positive effect on our economy,” Baláž wrote, adding that his bank’s estimate for GDP growth for 2014 stands at 1.7 percent.

Koršňák also expects the upward trends within the economy to prevail in 2014.

“We expect that the growth of the economy will continue accelerating under the influence of the improving external environment but also the reviving domestic demand,” Koršňák said, adding that his bank predicts the estimate for the GDP growth for 2014 at 2.9 percent.

According to Koršňák, the growth in 2014 should be more balanced, fuelled by both domestic and foreign demand.