THE LATEST statistics have not disappointed those who expected some positive numbers for the first three months of 2010 after the contraction of Slovakia’s economy last year. The country’s GDP not only returned to growth but also blessed the market with better-than-expected numbers. While market watchers do not predict any spectacular jumps ahead, they say that the country’s relatively small, export-oriented economy is set to grow for the rest of the year and even beyond.
However, economists also suggest that economic performance in the second half of the year might be affected by austerity measures if the government formed after the June 12 general election opts for belt-tightening policies.
The economy grew in the first quarter of 2010 at a rate of 4.6 percent year-on-year in constant prices, according to the flash estimate of the Slovak Statistics Office released on May 12. Last year Slovakia’s economy contracted by 4.7 percent after years of robust growth exceeding 6 percent.
Prime Minister Robert Fico interpreted the numbers in the flash estimate as an endorsement of Slovakia’s ability to fight the effects of the global economic downturn.
“Slovakia, as far as the impacts of the global economic crisis are concerned, is doing very well,” Fico said on May 12, as quoted by the Sme daily.
If the country’s economy moves in line with expectations, Slovakia might then boast one of the highest growth rates in the European Union. The European Commission has forecast GDP growth for Slovakia in 2010 of 2.7 percent, the Economy Ministry’s estimate is 2.8 percent and the central bank, the National Bank of Slovakia, is expecting 3.2-percent growth.
Real GDP increased by a seasonally adjusted 0.8 percent quarter-on-quarter in 1Q10, putting annual growth at 4.6 percent, above the 4-percent expectation of the market and her bank, said Mária Valachyová, an analyst with Slovenská Sporiteľňa, Slovakia’s largest bank.
VÚB Banka senior analyst Martin Lenko told The Slovak Spectator that his bank too had expected upbeat numbers: its estimate stood at 4.5 percent year-on-year.
The economy is thus continuing its recovery after a steep fall in late 2008 and early 2009; this fall provided a low comparative base which has helped to flatter the annual growth rate figure in the first quarter of 2010, Valachyová said.
Though the detailed GDP structure will be released on June 4, “we expect industrial output and foreign demand to lie behind the higher-than-expected figure,” Valachyová told The Slovak Spectator.
Lenko also sees the growth of foreign demand and a build-up in inventory levels as being behind the figures.
“Household consumption has probably remained weak, however,” Lenko added.
Observers also suggest that the rising jobless rate has been putting the brakes on domestic demand. UniCredit Bank analysts Ján Tóth and Ľubomír Koršňák note that the domestic economy has continued to drag down employment: in the first quarter, the number of jobs dropped by 7,000. This compares to a fall of 12,000 in the fourth quarter of 2009 and a reduction by 32,000 jobs in the third quarter of last year.
In the first quarter, 2.133 million persons were employed in Slovakia, representing a 3 percent year-on-year drop in employment, according to the Statistics Office flash estimate. Cleaned of seasonal influences, employment reached 2.142 million persons, representing a 3.2 percent year-on-year drop in employment.
“On a less positive note, nominal GDP increased only 2.7 percent year-on-year, below our expectations; we assumed zero deflation,” Valachyová said. “This means that higher output was achieved also thanks to lower prices, posing risks to tax revenues.”
Importantly for Slovakia, key export markets Germany and the Czech Republic continued to recover, both posting 0.2 percent quarterly growth in the first quarter of 2010, as did the eurozone overall, said Valachyová.
GDP increased by 0.2 percent in both the eurozone and the European Union during the first quarter of 2010 compared with the previous quarter, according to a Eurostat flash estimate. In the fourth quarter of 2009, growth rates were 0.0 percent and 0.1 percent respectively, says an official statement by the European statistics authority.
Year-on-year, seasonally adjusted GDP increased by 0.5 percent in the euro area and by 0.3 percent in the whole EU in the first quarter of 2010, after posting a fall of 2.2 percent and 2.3 percent in the previous quarter, according to the release.
Valachyová expects the gradual recovery to continue in Slovakia, along with the euro area, but also attributes a role to the parliamentary elections and their potential impact on the performance of the economy.
“The speed of the recovery on a quarterly basis might slow down in the second half of the year as some fiscal restrictions could be implemented following the elections,” Valachyová said. “The annual growth rate is also likely to decline due to the less favourable base effect in the course of the year.”
The first-quarter growth implies positive risks for Slovenská Sporiteľňa’s full-year forecast of real GDP growth of 2.6 percent, Valachyová said, but added that it would be necessary to wait until an updated forecast including GDP structure is released.
Lenko predicted GDP growth of 4.0 percent in the second quarter of 2010, and of 2.2 percent in the third quarter. VÚB Banka’s estimate for the fourth quarter stands at 1.8 percent, while Lenko forecast 2010 GDP growth of 3 percent.
UniCredit Bank kept its consensus estimate of the growth of the country’s economy at 3.1 percent, even after the publication of the flash estimate.
