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STATISTICS BUREAU RELEASES UPDATED FULL-YEAR FORECAST

Post-election economy in "surprisingly good" shape

SLOVAKIA'S gross domestic product should grow by 6.5 percent in 2006, according to an outlook released by the Statistics Bureau on September 14, while inflation is expected to come in at 4.5 percent.

SLOVAKIA'S gross domestic product should grow by 6.5 percent in 2006, according to an outlook released by the Statistics Bureau on September 14, while inflation is expected to come in at 4.5 percent.

Apart from the latter statistic, which is higher than the maximum allowed if Slovakia is to enter the eurozone in 2009 as planned, the Bureau expects the economy to continue to prosper.

Employment should grow by 3.6 percent y-o-y, bringing unemployment down to 13.6 percent for the full year. The nominal monthly wage is forecast to rise 7.8 percent to Sk18,750, which translates into a 3.2 percent growth in real wages from 2005.

The state budget ended June 2006 with a deficit of Sk10.2 billion, or 1.3 percent of GDP. Average inflation was 4.5 percent.

"I'm surprised by what good shape the economy is in, given that we're just after elections," said Ján Tóth, head economist at the ING bank. "Even though I expected a less damaging political cycle than in the past - spending before elections and belt-tightening afterwards - it's clear that the former cabinet used hardly any populist instruments before elections.

"Real wages aren't artificially inflated, the [GDP] growth isn't based only on feeding money into the economy, and its structure is very nearly optimal."

The Bureau's forecast combines actual results for the first half of the year with updated trends for the second half.

GDP growth rose from 6.3 percent in the first quarter to 6.7 percent in the second (9.6 percent in current prices for the first half to Sk772.6 billion). The increase was fuelled by a 6.7 percent rise y-o-y in foreign demand. In terms of domestic demand, there was an 8 percent rise in gross fixed capital and a 6.3 percent increase in final household consumption (6 percent in the public sector).

The deficit in the current account of the balance of trade was Sk52 billion at the end of July, which was an increase of one-third over the same period in 2005. Tóth, who expects a full-year deficit of Sk75 billion, ascribed the result to imports of technology by Slovakia's three automakers, and said that when the Peugeot and KIA plants started exporting this year, the current account deficit would shrink dramatically.

"Next year we will no longer be talking about the trade deficit as a possible problem," he said. "Industry is starting to produce more strongly. So far we have felt mainly the new model [at the Volkswagen plant near Bratislava]. In the coming months we will see the effects of rising production in the French [Peugeot-Citroen] factory, and at the beginning of next year the third [KIA] factory will come on line.

"We will see a dynamism in manufacturing that we have never seen before."


- From press reports

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