SLOVAKIA’S business leaders were feeling slightly better about the economy in June after growing pessimism during the previous three months. Beginning in February 2009, the index of economic sentiment which reflects the expectations of all the players in the business environment, had hit historical lows recalling the bleakest times in 1997.
While market watchers confirm that the economic sentiment indicator recorded an uptick in June they are hesitant to call it a trend.
And even if it makes the light at the end of the tunnel seem a little closer, they add that there is definitely a long way to go until hard data prove that those rays of light seen by business people are a real sign of hope.
The indicator of economic sentiment improved in June by 1.3 point when it moved from 66.3 to 67.6 month-on-month, as measured by the Slovak Statistics Office. However, when compared to the same period last year, the sentiment indicator is still 29.3 points lower and remains 32.8 points below its long-term average, the office said.
The economic sentiment index is prepared by adding confidence indicators from industry (40 percent), services (30 percent), consumers (20 percent), the construction sector (5 percent) and retail (5 percent). The base year is 2005, when the index was set at 100 points.
The mood among key players in Slovakia’s economy has not maintained its nine-month declining trend but on the contrary, it has recorded some improvement, said an analyst with Poštová Banka, Eva Sárazová.
Bolder confidence in the industrial and services sectors, as well as much better consumer confidence has slightly pumped up the overall sentiment indicator, the statistics authority said.
“The more optimistic mood in Slovakia has to a certain degree been influenced by the better condition of the indicators of trust in the eurozone,” Sárazová told The Slovak Spectator. “The more positively tuned news is making the light at the end of the tunnel brighter and more visible. However, at this point it is preliminary to talk about a definite turn.”
Silvia Čechovičová, an analyst with ČSOB Bank, agrees but suggests that indicators of sentiment should neither be underestimated nor overestimated.
“So far, indicators of sentiments have been dropping, which is why it is hard to tell whether a shift in the trend can be expected now; it is really hard to tell from one single number,”
Čechovičová said, adding that the market will have to wait for further concrete numbers which might show whether there is a real shift in the mood of the business community or whether the June number was a one-off fluke.
According to Čechovičová, the sentiment indicators are so-called soft indicators which must be confirmed by hard numbers about the economy – be they improved results for industrial production, business incomes or GDP itself.
Month-on-month there was an improvement but in terms of a year-on-year view there was still a dip, she said.
“It is strange, because unemployment is still growing and the economy is not yet sending news which would indicate that we already have the worst developments behind us,” said Čechovičová.
Senior analyst with Slovenská Sporiteľňa, Mária Valachyová, also confirmed that the index remains well below its long-term average.
According to Valachyová, the better mood in industry can be attributed to expectations of better production over the next three months even while recent production and foreign demand have been dropping.
“It is possible that firms are in negotiations with buyers and they see a change in the sentiment of their clients,” Valachyová told The Slovak Spectator. “In the main export partner – Germany – business confidence has been improving for several months, though the real data still have not confirmed revival.”
Čechovičová spoke in the same vein.
“It might be that some industrial companies started sensing higher orders, for example from the effect of the car-scrapping bonus, and are gearing up production which might subsequently be reflected within the circle of their suppliers,” Čechovičová said, adding that Germany is Slovakia’s largest trade partner.
The better indicators of economic sentiment in Germany, though they are reflected in Slovakia’s economy after a delay, could be a significant factor, Čechovičová said.
Valachyová added that more positive numbers are coming out from the United States and Asia which means a gradual recovery of the overall global economy and this should, after a certain time, be reflected in Europe and also in Slovakia.
