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FLASH ESTIMATE PUTS GROWTH AT 9.2%

GDP surge brings no surprises

SLOVAKIA'S economy has not lost any of its vigour, posting a 9.2 percent growth year-on-year in the second quarter of 2007.
The GDP created from April to the end of June stood at Sk449.3 billion (€13.3 billion), the Slovak Statistics Office reported in its flash estimate on August 14.

SLOVAKIA'S economy has not lost any of its vigour, posting a 9.2 percent growth year-on-year in the second quarter of 2007.

The GDP created from April to the end of June stood at Sk449.3 billion (€13.3 billion), the Slovak Statistics Office reported in its flash estimate on August 14.

The GDP growth has maintained its pace for the fourth consecutive quarter, which makes market watchers optimistic about Slovakia's economic performance for the rest of the year.

"We expect the full-year GDP growth to be 8.7 percent year-on-year," Lucia Štekláčová, an analyst with the ING Bank, told The Slovak Spectator. "We have adjusted this a little bit downwards, but this will be still the highest pace in Slovak history."

Slovakia will join the club of the fastest-growing economies in the EU27 along with the Baltic countries, reaping the fruits of recent reforms and foreign investments, Štekláčová said.

Juraj Valachy, an analyst with Tatra Banka, also expects a slight slowdown with GDP growth dropping below nine percent, mainly due to a high base in the third quarter of 2006 and holiday shutdowns in all the car factories.

"However, we are sticking to our forecast for 2007 GDP real growth at 9.0 percent," Valachy told The Slovak Spectator.

The GDP growth was mostly driven by the added value in industrial production - mainly the production of machinery, vehicles and (electronics), the Statistics Office said.

On the consumer side, the growth was mostly caused by continuing foreign and domestic demand, according to the flash estimate.

Since the Statistics Office does not provide the basis of its flash estimate, analysts can only speculate on the key growth factors, Valachy said.

"Judging from the retail sales and wage development in selected branches (employing 60 percent of all employees), household consumption should maintain a strong pace from the previous quarter (6.5 percent year-on-year)," Valachy said.

The trade balance from customs statistics, which are published on a monthly basis, showed a clear improvement over the year, so export growth could be the second important factor that contributed to the growth, he added.

The flash estimate will be updated with additional statistical data, which is scheduled to be released on September 4.

The estimate brought no surprises to the market.

"The headline number is no surprise," Štekláčová said. "The figures due on September 4 may show a little shift in favour of domestic demand.

"Nevertheless, imminent inflationary risks are not visible, but they are certainly worth watching due to the tightening labour market conditions in the medium-term. A 25 basis point hike is still expected in the first quarter of 2008."

Marek Gábriš, an analyst with the ČSOB bank, does not expect any great surprises from the September 4 GDP data release, either.

"The GDP growth should continue having a healthy basis relying on both domestic and foreign demand, thus it should not contribute to any inflationary pressures," Gábriš said.

The continued economic growth will help keep the Slovak currency strong, he said. Some external factors - such a global aversion towards risk in investments - are also influencing the crown right now, he added.

"However, we expect that during the fall the Slovak crown will return to a new appreciation wave, driven by economic growth and productivity," Gábriš said.

From the monetary policy point of view, the GDP data is expected to be in line with the National Bank of Slovakia (NBS) forecast and does not call for any change in the rates, Valachy said.

Since the high growth is mostly driven by rising capacities in the manufacturing industry, analysts do not see an imminent risk of the economy overheating, Štekláčová said.

In the first quarter, Slovakia's economy grew nine percent in real prices. Cleared of seasonal influences, the GDP in fixed prices was Sk345.5 billion (€10.2 billion), which is an increase of 9.7 percent year-on-year, according to the Statistics Office.

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