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Trade gap widens as EU demand slips

Slovakia's trade deficit deepened dramatically year-on-year in the first six months of 2001, figures released by the central bank July 27 showed.
The trade deficit for 1H2001 stood at 42.1 billion Slovak crowns, fully 31.4 billion crowns higher than the figure for January to June 2000. Imports reached 349.2 billion crowns, up 29.8% on the same period last year, and exports 307.1 billion crowns, up 18.9%.
The National Bank of Slovakia (NBS) and the Economy Ministry quickly revised their forecasts for trade this year. The NBS raised its previous forecast of a 64 billion crown trade gap to 73 billion, and the Economy Ministry its prognosis of 50 billion crowns to 70 billion crowns.

Slovakia's trade deficit deepened dramatically year-on-year in the first six months of 2001, figures released by the central bank July 27 showed.

The trade deficit for 1H2001 stood at 42.1 billion Slovak crowns, fully 31.4 billion crowns higher than the figure for January to June 2000. Imports reached 349.2 billion crowns, up 29.8% on the same period last year, and exports 307.1 billion crowns, up 18.9%.

The National Bank of Slovakia (NBS) and the Economy Ministry quickly revised their forecasts for trade this year. The NBS raised its previous forecast of a 64 billion crown trade gap to 73 billion, and the Economy Ministry its prognosis of 50 billion crowns to 70 billion crowns.

However, both said that the widening gap was no cause for concern, and had been driven by a continued impressive growth in imports of technology (almost 40% year-on-year) by new investors, purchases that would eventually help the economy.

"The deficit was caused by an increased import of investment technologies tied to foreign investments... while lower exports were recorded because of a fall in demand from EU countries," Economy Ministry spokesman Peter Benčúrik said.

While EU economic growth between 1994 and 1999 has wavered between 1.4% and 2.7%, estimates from Slovak analysts put EU GDP growth in 200 at 3.4%, but falling dramatically to 2.2% this year.

In 2000, Slovakia registered its highest-ever annual level of foreign direct investment (FDI): $2 billion. The FDI rush brought with it a 36% increase in imports of machines and technologies in the first quarter of 2001 over the same period last year, and with it, predictions of a mid-term boost to industry in Slovakia.

The rise in investment-led imports, which continued in the second quarter, should boost the country's economy in the future, analysts have said, fuelling first production and then exports, thus again narrowing the trade gap.

However, some economists warned that a long-term slowing of demand in EU countries could have a negative effect on the Slovak economy. EU countries are the main export destinations for products from Slovakia.

In 1H1999 Slovakia exported 120 billion crowns of goods to EU countries, the figure rising to 155 billion in 1H2000 and 188 billion in 1H2001. The percentages of total Slovak exports are 60.8%, 60% and 58.6% respectively.

"It's generally not good for any kind of economy when its opportunities for export shrink," said Radomír Jač of Commerzbank Capital Markets in Prague.

Car exports fall

Exports of automobiles, refined oil and gasoline and flat rolled iron and steel - goods which make up 28% of the country's total exports - were below many analysts' expectations in the first six months of the year. This, they say, was another key factor behind the trade gap's growth.

According to the NBS, exports of passenger cars grew 6.4 billion crowns in 1H2001 on a year-on-year basis. However, in the same period of last year they recorded a 12 billion crown rise on 1H1999.

ING Barings, in a weekly report released July 30, cited the 11.3 billion crown exports of Volkswagen Slovakia, the largest automobile producer in Slovakia, as below expectations. ING had predicted the company's exports at around the 14 billion crown mark.

The report suggested the reason behind the company's relatively poor export performance had been upgrades to one of three models it produced.

However, the Economy Ministry expects Slovakia's largest exporters, including VW, to show stronger growth in exports in the second half of this year.

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