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TRADE DEFICIT FALLS BY 51.6 PERCENT YEAR-ON-YEAR, EXPORTS LED BY AUTO SALES

Crown strengthens on positive trade data

BETTER-THAN-EXPECTED foreign trade figures for March nudged the Slovak crown to record-breaking levels, and analysts expect both the trade balance and the currency to continue to strengthen in the future.
The National Bank of Slovakia (NBS) spent about €250 million in three intervention waves on May 5 to ease the crown from it strongest-ever value of 40.75 crowns to the euro, the TASR news agency reported. It was the first intervention of the year.
Slovakia's currency also performed well against the US dollar, on April 30 firming to 36.78 to the dollar, its strongest value against that currency since January 1999 and it further strengthened over the following days.


AN INCREASE in Slovak exports has helped push the crown to reach record levels against the euro and dollar.
photo:TASR

BETTER-THAN-EXPECTED foreign trade figures for March nudged the Slovak crown to record-breaking levels, and analysts expect both the trade balance and the currency to continue to strengthen in the future.

The National Bank of Slovakia (NBS) spent about €250 million in three intervention waves on May 5 to ease the crown from it strongest-ever value of 40.75 crowns to the euro, the TASR news agency reported. It was the first intervention of the year.

Slovakia's currency also performed well against the US dollar, on April 30 firming to 36.78 to the dollar, its strongest value against that currency since January 1999 and it further strengthened over the following days.

Experts expect the trend to continue.

"After the central bank left interest-rate levels unchanged and the positive foreign trade results for March, I expect strong interest in the Slovak currency," Juraj Zabada, a trader with Slovenská sporiteľňa, told the SITA news agency.

Numbers released by the Statistics Office on April 30 show that the trade deficit for March, at Sk3.6 billion (€87 million) was 51.6 percent lower than for March 2002.

Exports rose by 24.4 percent on the year to Sk63.3 billion (€1.5 billion), and imports by 14.8 percent to Sk 66.8 billion (€1.6 billion). The first-quarter cumulative deficit of Sk7 billion (€171 million) represented a fall of 64.1 percent year-on-year. Exports for the first three months of 2003 rose by 22.1 percent to Sk175.4 billion (€4.3 billion) and imports by 11.8 percent to Sk182.3 billion (€4.4 billion).

Analysts say the solid export growth can be attributed largely to the activities of western investors.

"[Growth in exports] can be explained by the fact that in the last two to three years, foreign companies such as US Steel, Volkswagen, Sony, and others have invested in Slovakia to increase the volume of production in existing factories," said Ján Tóth, chief analyst with ING Bank in Slovakia.

In addition, say analysts, Slovakia is protected against the impact of global economic stagnation by low costs, especially the low price of labour.

"When a parent company has several subsidiaries, it tends to reduce production in places where costs are higher. For example, if Volkswagen manages to sell fewer cars, it needs to reduce production. It will naturally do so in countries where costs are seven or eight times higher than in Slovakia, so this will most likely be one of the last countries where [VW] will cut production," said Tóth.

The largest export surpluses were with Germany, Italy, and Austria - a trend that is likely to continue.

"We expect that the existing capacities will keep exports high during 2003 and 2004. At the same time, we expect there to be even more foreign investment, because we are clearly the cheapest out of the V4 countries. There is also the planned tax reform, which is making the Slovak business environment more attractive, so it really makes sense to invest in Slovakia at the moment," said Tóth.

At least one major production facility will come on line in the near future. PSA Peugeot-Citroen, Europe's second-largest car producer, plans to open a factory in Trnava in 2006, bringing with it an investment of €700 million.

Observers say increased exports will help Slovakia's economy after the country's scheduled entry into EU in May 2004.

According to the Social Barometer, a report prepared by the Labour, Social Affairs, and Family Ministry and presented by Labour Minister Ľudovít Kaník a cabinet meeting on April 30, prices in Slovakia will have to increase on average by 62 percent to reach EU levels. Prices for services and health care are expected to record the highest growth.

"If the export capacity does not grow, the economy will slow down again. If we want to keep up the growth and increase our living standards, we need exports to grow fast," said analyst Tóth.

However, the National Bank of Slovakia (NBS) has warned that the trade balance is not the only indicator that it will consider when shaping its monetary policy.

"The market lays too much emphasis on foreign trade," said NBS head Marián Jusko at a recent press conference.

The NBS pointed out on April 29 that the shrinking trade deficit is not reflected in the current account balance, the net flow of current transactions between countries, including goods, services, and interest payments.

The January current account deficit reached Sk1.81 billion (€44 million), out of which only Sk893 million (€21.8 million) was represented by the foreign trade deficit. Preliminary results for the first two months of the year showed that the current account deficit was Sk5.3 billion (€129 million), Sk2.8 billion (€68.3 million) less than in the same period last year.

"The current account deficit is also improving. However, just as in neighbouring countries, the results for services, which make up for about 10 percent of the current account balance, are getting worse," said Tóth.

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