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ECONOMY MINISTRY REVISES YEAR-END TARGET

Trade deficit continues to improve, but 2H00 results may differ

The Economy Ministry has said it has revised its forecast for the year-end Slovak trade deficit after the first half of the year saw a fall of 17 billion Slovak crowns ($360 million) on the same period of 1999.
The ministry said July 27 that its forecast for the year 2000 trade deficit was now 30 billion crowns ($640 million), 15 billion crowns less than the end of last year and a full 10 billion crowns below the top end of its original predictions. The announcement came on the heels of figures showing a 10.1 billion crown deficit in H1 2000.
Imports stood at 268.5 billion crowns, with exports at 258.4 billion crowns in the January to June period. In June 2000, monthly imports were 47.9 billion crowns and exports 49 billion crowns.

The Economy Ministry has said it has revised its forecast for the year-end Slovak trade deficit after the first half of the year saw a fall of 17 billion Slovak crowns ($360 million) on the same period of 1999.

The ministry said July 27 that its forecast for the year 2000 trade deficit was now 30 billion crowns ($640 million), 15 billion crowns less than the end of last year and a full 10 billion crowns below the top end of its original predictions. The announcement came on the heels of figures showing a 10.1 billion crown deficit in H1 2000.

Imports stood at 268.5 billion crowns, with exports at 258.4 billion crowns in the January to June period. In June 2000, monthly imports were 47.9 billion crowns and exports 49 billion crowns.

Despite the encouraging export-led growth, the government has warned that it is expecting a decline in the trade performance over the second half of the year as the effect of the July 1 reduction of the import surcharge from 5% to 3% begins to filter through, and as the decline in real wages slows towards the end of the year.

"We are expecting the trade deficit to go up, but still stay below 5% of GDP in the coming two years. The second half of this year will be a bit worse than the first," said Vladimír Tvaroška, advisor to Deputy Prime Minister for the Economy Ivan Mikloš.

He added: "The first half of this year was one of macro-economic stabilisation. The macroeconomic figures were just perfect. The trade figures as well were the best we've seen, and we probably won't see them that good for some time to come."

Tvaroška warned the Economy Ministry's forecast was unofficial. "There isn't a government forecast as such, but the [Economy] ministry has its own estimates," he added.

But analysts have agreed with the ministry's forecasts, and many are preparing to revise their own prognoses for the trade deficit in the coming weeks.

Michal Kustra of Tatra banka said: "We like the ministry's figure. We think they can make it. There won't be such a huge decline in real wages in the second half of the year as we have seen recently, meaning that consumer demand will pick up slightly. On the other hand, we're frankly not expecting massive growth in exports in that period either."

Kustra explained that while a number of factors had been behind the strong 1H00 trade performance, perhaps the most important had been the full recovery of Slovak commodities, which came under severe competition from cheaper Russian and Ukrainian goods following the 1998 Russian crisis and the ensuing devaluation of those nations' currencies.

"Looking at the export figures, the growth was strongly supported by commodities which managed to recover from the beating they took in the Russian crisis," the analyst said. He added, however, that Slovak commodities would likely not perform as well in the second half, thus reinforcing his belief that the ministry's estimates were accurate.

Another major factor in the strong performance of Slovak exports has been their increasing orientation towards the markets of booming EU economies such as Germany. Slovakia saw a 13.7 billion crown jump in exports in 1H00 to Germany, its largest trading partner with a 27% share of Slovakia's total exports.

Curiously, were it not for soaring world oil prices, the recent data could have been immeasurably better. The Economy Ministry said that while the volume of imported crude oil remained almost unchanged compared with the first half of 1999, the increased value of those imports added 10 billion crowns to the trade gap in 1H00 - precisely the margin of deficit.

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