MARKET WATCHERS EXPECT AUTO EXPORTS TO PUSH ECONOMIC GROWTH OVER 7 PERCENT IN 2007

GDP cools to 6.3 percent in first quarter

AFTER a heated performance in the last quarter of 2005 that made Slovakia the economic champion of Central Europe, the country's economy slowed moderately in the first three months of 2006.

AFTER a heated performance in the last quarter of 2005 that made Slovakia the economic champion of Central Europe, the country's economy slowed moderately in the first three months of 2006.

Slovakia's gross domestic product grew by 6.3 percent in 1Q06 compared to the same period last year, propelled mostly by household consumption and investments into real estate and highways, according to the snap estimate released by the Slovak Statistics Bureau on May 15.

Slovakia created a GDP worth Sk368.8 billion over the first three months of 2006, while the GDP in fixed prices stood at Sk305.9 billion over the January-March period, a 6.2 percent increase compared with 1Q05.

The Statistics Bureau will update its snap GDP estimate in early June.

The forecast did not surprise economic analysts, who had been expecting a slight drop from the growth in 4Q05.

"The 6.3 percent release was basically in line with our forecast of 6.4 percent. The reported snap figure does not show detailed GDP structure, so we can only guess from the monthly activity indicators that the change from the 7.6 percent year-on-year growth in 4Q05 was driven by some moderation in consumer and investment spending and a wider trade deficit," VÚB Bank chief analyst Zdenko Štefanides told The Slovak Spectator.

According to the analyst, the 7.6 percent 4Q05 figure in many ways overshot the growth trend and exceeded the economy's potential at that stage.

"The moderation to 6.3 percent in 1Q06 is therefore more a return to a growth trend than a slowdown," Štefanides argued.

ČSOB bank analyst Marek Gábriš saw the reason for the slowdown in the deteriorating foreign trade situation.

"Foreign trade didn't go very well in the first quarter of this year, and it probably negatively affected the GDP," Gábriš told the TASR news wire.

However, Štefanides said there was a good chance the economy would reach the forecast full-year gain of 6.5 percent.

"In 2007, meanwhile, there is a good chance that the Slovak economy will raise its growth potential further to above 7 percent, thanks mainly to the completion of major FDI projects, such as the pro-export facilities of the PSA and KIA auto manufacturers," Štefanides told the Spectator.

Earlier this month, the EC predicted that the country's GDP growth would remain at around 6 percent this year, and climb to 6.5 percent next year.

Notably, domestic production will remain the main engine of this growth, while exports will pick up significantly, according to the EC.

The country's healthy economy has seen higher employment figures, offering hope that Slovakia's troubling unemployment rate can be reined in.

Employment increased 2.3 percent year-on-year in 1Q06, a rate that analysts said was one of the fastest ever. The EC's spring economic prognosis predicts that employment will continue to increase, and that the unemployment rate will drop from 15.5 percent this year to 14.8 percent in 2007.

Strong domestic demand and newly launched export production capacities are expected to provide new jobs.

The IMF estimated that Slovakia's GDP would grow by 6.3 percent this year and 6.7 percent next year, revising its September 2005 estimate of 5.4 percent Slovak economic growth in 2006.

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