CRISIS-WEARY businesses and market watchers were offered some pre-Christmas cheer this month when Slovakia’s Statistics Office released data showing that the country’s economy grew in the third quarter of 2009 by 1.6 percent compared with the second quarter of the current year. Although this was one of the highest third-quarter GDP growth figures posted so far in the EU, according to Eurostat, Slovakia’s GDP was still 4.9 percent smaller in the third quarter of 2009 than it was during the same quarter last year. The continuing mild improvement has allowed analysts to suggest that the worst of the recession may now be past.
Slovakia’s economy was 4.9 percent smaller in the third quarter of 2009, year-on-year, according to the flash estimate by the Slovak Statistics Office. By comparison, in the second quarter of 2009 gross domestic product (GDP) was 5.3 percent down year-on-year. The numbers have not surprised analysts, though some had issued more pessimistic predictions for the economy’s Q3 performance.
The market is now waiting for the release of the detailed breakdown of GDP structure, but observers are already suggesting that slowly recovering foreign demand could be making a positive contribution.
“As far as the structure of GDP growth in the third quarter is concerned, we assume that foreign demand and stocks have made positive contributions,” VÚB Banka senior analyst Martin Lenko told The Slovak Spectator.
According to Lenko, the flash estimate was almost in line with analysts’ -5.0 percent median estimate. He added that his own bank’s estimate of -6.5 percent was more pessimistic than the consensus.
In December the Statistics Office is expected to publish a revision of quarterly GDP results, which will probably show that the technical recession started in the fourth quarter of 2008 and not in the first quarter of 2009, Lenko said.
“We ascribe the quarterly improvement to industry, where production increased by a strong 9 percent quarter-on-quarter in the third quarter of 2009,” Slovenská Sporiteľňa analyst Mária Valachyová wrote.
According to Valachyová, this growth is related to ongoing recovery in key export markets, for example Germany’s 0.7-percent quarter-on-quarter growth, or the Czech Republic’s 0.8-percent quarter-on-quarter growth in the third quarter, as suggested by preliminary statistics.
“The recovery in Q2 and Q3 2009 was relatively steep and was largely affected by fiscal stimuli such as the car-scrapping subsidy,” Valachyová wrote. “As fiscal impulses across the euro area fade, we expect quarterly growth rates to slow down in coming quarters but remain positive.”
Lenko too suggested that the fourth quarter should bring positive, though slightly slower quarter-on-quarter growth than in the third quarter of 2009.
“Without taking possible revisions into account, we expect a similar decline in year-on-year GDP in the last quarter as was seen in Q3 2009,” wrote Valachyová.
According to her, this would imply a full-year fall in GDP of 5.2 percent for 2009.
Jana Mrvová, an analyst with Poštová Banka, who had also expected a slightly worse GDP performance for Q3 than the Statistics Office’s flash estimate, said that Slovakia’s economy has posted its worst result in the first quarter of 2009 and that the year-on-year fall of the economy would now gradually get milder.
“A significant positive signal in GDP development is the quarter-on-quarter growth at 1.6 percent, which has continued for the second subsequent quarter,” Mrvová told The Slovak Spectator. “It suggests that Slovakia is slowly recovering from the worst.”
As far as the structure of GDP in the third quarter is concerned, Mrvová assumes that the economy was held back primarily by gross fixed capital since the investment activities of businesses remain weak.
“Crisis-hit businesses are trying to save at all levels and have a rather careful approach to investment,” Mrvová said, adding that companies are probably focusing on investments launched before the crisis. She suggests that businesses are saving new investment projects for better times, once the crisis has subsided.
According to Mrvová, weak foreign demand has been responsible for the year-long fall in industrial production and at the same time the decline in exports. However, Slovakia’s economy is not just export-oriented but also to a large degree reliant on imports of raw materials and components needed for production, she added.
“Since production is dropping, imports are declining as well and thus the impact of clean exports on GDP is not as negative as it can seem during a crisis,” Mrvová said. “On the contrary, we expect that foreign demand and thus also exports of Slovak products is again becoming a factor, which is contributing to the revival of the economy.”
Valachyová expects a mild recovery next year and GDP growth of 2.6 percent. Mrvová predicts that Slovakia’s economy will return to black numbers at the beginning of next year, with GDP growing by 1.4 percent. However, she added that these data will be affected by the revision of GDP results for 2008 and 2007.
On November 16 the Slovak Statistics Office revised its figures for GDP growth for previous years, since its original numbers for 2008 had been slightly more upbeat than the real performance of the economy. According to the revised data, the country’s GDP in 2008 grew by 6.2 percent as opposed to the originally-reported figure of 6.4 percent. By contrast, GDP figures for 2007 have been revised upwards, from 10.4 to 10.6 percent, the Statistics Office reported.
Interpreting the revision, Lenko restated that the technical recession started as early as in the fourth quarter of 2008 rather than in the first quarter of 2009.
However, Mrvová said that the revision should not have any significant impact on the performance of the Slovak economy.
More than 2.178 million people in Slovakia were employed in the third quarter of this year, down 3.7 percent year-on-year, according to the employment flash estimate by the statistics authority. After seasonal adjustments, the data show that 2.166 million people were employed, 3.6 percent down year-on-year.
“Recovery in the job market will follow after a lag of a few quarters; we expect the unemployment rate to peak in Q1 2010,” Valachyová wrote.
