Consumers have reduced their spending due to high inflation and spent savings. (source: Sme)
The Slovak economy continued to grow moderately in early 2023, the flash estimate of the Slovak Statistics Office indicates.
“A possible winter recession due to the energy crisis has thus been avoided, although economic growth has slowed significantly,” Michal Lehuta, macroeconomist with the VÚB bank wrote in his memo.
Slovakia’s gross domestic product in fixed prices increased by 0.9 percent year-on-year in the first quarter of 2023, down from 1.1 percent for the final quarter of 2022. After seasonal adjustments, GDP in 1Q23 grew by 0.9 percent in yearly terms and by 0.2 percent quarter-on-quarter.
(source: Courtesy of the Slovak Statistics Office)
“The growth of the Slovak economy was mainly supported by a surplus in foreign trade and growing investment demand,” the Statistics Office reported. It will release detail data on June 6.
The available monthly statistics show that industrial production and retail sales continued to fall, and apparently construction output also declined, wrote Lehuta. EKasa data indicate that other - non-food and specialty - retail trade in particular is already suffering, as well as accommodation. Sales at current prices barely reached last year’s levels in April.
The gap between exports and imports was positive, with a surplus of €818 million in the category of goods at current prices, whereas in all quarters last year it was in deficit.
Consumers for persistent high inflation and spent savings, as expected, have reduced their spending, analysts at the National Bank of Slovakia indicate. The gradually declining sales of retailers suggest that Slovaks satisfied most of their needs last year even beyond current expenditures.
“Currently, household consumption has probably dampened economic growth,” said the central bank’s analysts as cited by the SITA newswire.
Slovakia fares better than neighbouring countries
In international comparison, Slovakia did not fare badly during the first quarter, according to ČSOB chief e4conomist, Marek Gábriš.
“Slovakia had the fastest growth in the V4 region,” said Gábriš as cited by SITA.
The Czech Republic was in a technical recession at the end of 2022 and left it at the beginning of this year. Even so, on a comparative basis, it ended up with a decline. Hungary is in recession for the third quarter. Poland achieved a solid quarter-on-quarter growth of 3.9 percent, but the year-on-year result was sheer stagnation, SITA reports.
Positive outlook
The outlook for the near future is generally positive, as the Slovak economy should be helped by the drawing of EU funds from the 2014-2020 period, and its growth could accelerate by the end of the year, expects Lehuta.
The estimated 1.5 percent growth for 2023 appears to be a realistic scenario, said Matej Horňák, analyst at Slovenská Sporiteľňa. He assumes that the decline in real wages and the spending of savings is reaching its limits and household consumption could remain under pressure. He anticipates a pick-up in external demand, particularly towards the end of this year; but this will strongly depend on the economic situation of our major trading partners, especially Germany.
“The threat of a recession in Slovakia seems to be a closed chapter in the current circumstances,” said Horňák.
