SLOVAKIA will continue crossing its fingers for continued economic vigour in its biggest trading partner, Germany, which surpassed expectations by recording 4.8 percent GDP growth in the first quarter of 2011. While still slightly lagging German growth, Slovakia also generated some very optimistic economic numbers – close to the rate of growth registered before the financial and economic crisis. The International Monetary Fund (IMF) predicted that the Slovak economy will be among the fastest growing economies of the European Union over the next two years.
Slovakia’s GDP grew by 3.5 percent year-on-year in the first quarter of 2011, similar to its pace during the final three months of 2010. On a seasonally-adjusted basis, the Slovak economy grew by 1.0 percent from the last quarter of 2010, the Slovak Statistics Office reported in its flash estimate released on May 15. Though the Statistics Office has not published detailed information on the strongest growth areas, economic experts do not expect any big surprises.
“We assume that growth has again been fuelled mainly by foreign demand,” Boris Fojtík, an analyst with Tatra Banka, stated, adding that large investments are also in the pipeline for Slovakia and that these investments will likely be positive items when the detailed report on GDP growth is released.
Ľubomír Koršňák, an analyst with UniCredit Bank Slovakia, noted as well that “Slovakia’s most significant business partners have been doing well.”
Mária Valachyová of Slovenská Sporiteľňa bank added that the strong German growth was to a certain degree associated with a revival in the construction sector which “at the end of the year had been stalled by unfavourable weather” and for that reason growth in that sector was even faster at the beginning of this year.
“Partly it is a one-time impulse,” Valachyová said, while adding that other aspects of German growth remain very strong and that this is good news for Slovakia since Germany takes 20 percent of Slovakia’s exports.
Koršňák commented that reviving investment by domestic companies has also probably made a contribution to GDP growth.
“This [development] is suggested by loans that the banking sector provided to non-financial companies, which at the beginning of the year showed increasing tendencies; the year-on-year growth accelerated to almost 4.0 percent,” Koršňák wrote in a UniCredit release.
Eva Sadovská, an analyst with Poštová Banka, said that industrial production in Slovakia has managed to return to pre-crisis levels thanks to strong foreign demand.
“Nevertheless, we do not have any great illusions about domestic consumption,” Sadovská added. “Unemployment in the first quarter remained high and thus it did not allow Slovaks to become spendthrift.”
Koršňák commented that the government’s austerity programme has contributed to a reduction in consumer confidence and has delayed a recovery in domestic consumption.
“We expect that government spending has also recorded a drop and that the savings measures within public administration have an anti-growth effect on GDP,” Koršňák wrote.
According to Koršňák, GDP growth has been accompanied by some growth in domestic employment, which registered 1.6-percent year-on-year growth in the first quarter and a 0.6-percent improvement from the last quarter of 2010.
Valachyová said that the preliminary labour market numbers were surprisingly favourable, noting that the 0.6-percent quarterly growth was registered despite layoffs in the public sector and fewer seasonal jobs. But she added that data from district labour offices, on the contrary, indicated more layoffs in comparison to the previous quarter.
Fojtík expects that quarter-on-quarter GDP growth for the rest of the year could be even stronger than in the first quarter, and that it could even be supported by higher consumption by households, which should be less concerned about unemployment.
The IMF predicted that Slovakia’s economy will grow by 3.8 percent over the full year and by 4.2 percent in 2012, while predicting average economic growth in the eurozone at 1.6 percent in 2011 and 1.8 percent in 2012.
Koršňák’s bank has not modified its earlier prediction of 3.1 percent GDP growth in 2011.
Valachyová’s bank is projecting GDP growth of 4 percent for 2011, driven by strong foreign demand and further investments in Slovakia.
Sadovská at Poštová Banka is predicting that GDP growth for the whole year will hit 3.7 percent.
“Overall it will be slower growth than last year when the economy grew by 4 percent,” Sadovská said. “The reason behind this year’s growth will be continuing foreign demand.”
